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The Difference Between Chapter 7 and Chapter 13 Bankruptcies

Sustaining large amounts of debt is daunting, and looking for ways to find relief can be even more stressful. If you are looking to file for bankruptcy, there is still another choice to make - which chapter to file under. There are a number of differences between bankruptcy’s two main chapters, and our Arkansas bankruptcy team tells you everything you need to know.

Chapter 7

Once you have filed for bankruptcy under Chapter 7, a provision called “automatic stay” is put into place, preventing any creditor from harassing you about your debts or collecting from you. It is worth noting, however, that this benefit is also available to filers of all other bankruptcy chapters.

Chapter 7 is often known as a “straight” or “liquidation” bankruptcy. Chapter 7 is the most common chapter of bankruptcy filed, as well as the quickest, taking around 4-6 months to complete. It is designed for those with large amounts of unsecured debts with little to no disposable income.

While many bankruptcy filers may not need to liquidate their assets at all, there may be times where it is necessary. Once any unexempt property is turned over, the debtor is then entitled to a discharge, or elimination, of their debts.

Here are some debts that can be discharged by Chapter 7:

  • Credit card debt
  • Medical debt
  • Personal unsecured debts
  • Civil judgments
  • Back rent from an old lease

While you may want to know what debts you can get rid of, there are some debts that Chapter 7 cannot discharge. Here are some of those debts:

  • Alimony and/or child support
  • Student debts
  • Certain taxes
  • Attorney fees in child custody/support cases
  • Court fines and penalties
  • Criminal restitutions

If you notice that your debts amount to more than half of your total annual income, contact our firm today at (479) 888-2039 to schedule a consultation with our team.

Chapter 13

Chapter 13 is commonly referred to as the “reorganization” chapter. It takes longer than filing under Chapter 7, taking around 3-5 years, but in turn, it allows far more time to catch up on your finances.

There are several important benefits associated with Chapter 13 bankruptcies including:

  • Saving your home from foreclosure
  • Protecting your property from liquidation
  • Discharging some debt while paying back less than you originally owed
  • The ability to defer tax debts and student loans
  • Halting creditor harassment and collection actions

Chapter 13 can provide the chance to restructure your current payment plan and extends the life of your payments to keep you from falling further into debt. With a new and improved plan, you can make new monthly payments to a bankruptcy trustee, which is determined by the difference of subtracting living expenses from your take-home pay.

As long as you keep making payments on time, you will be able to fulfill your financial obligations and set yourself up for long-term success.

Contact our Arkansas Bankruptcy Team Today

We understand how stressful financial situations can be. That’s why we are committed to providing compassionate and personalized services to each of our clients to make sure they find the success they deserve.

To find out how we can guide you through the bankruptcy process, contact our seasoned team today through our website or give us a call at (479) 888-2039!