Understanding the Differences Between Chapter 7 and Chapter 13 Bankruptcy

Filing for bankruptcy can be a daunting decision, especially when you're uncertain about which chapter to choose. In Warwick, RI, understanding the nuances between Chapter 7 and Chapter 13 bankruptcy is crucial for making an informed decision that best suits your financial situation.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most of their unsecured debts, such as credit card balances and medical bills. This process typically lasts three to six months and involves selling non-exempt assets to repay creditors. Fortunately, many everyday possessions are considered exempt, meaning you can keep items like your vehicle or primary residence under specific conditions.

What is Chapter 13 Bankruptcy?

In contrast, Chapter 13 bankruptcy is known as a "reorganization bankruptcy." It allows debtors to retain their assets while restructuring their debt into a manageable repayment plan, usually spanning three to five years. This option is ideal for individuals with a regular income who can afford to make monthly payments towards their debt.

Key Differences

Eligibility

One critical difference is eligibility. To qualify for Chapter 7, you must pass a means test, which assesses your financial situation to ensure your income is below the state median. Conversely, Chapter 13 requires a stable income to support your repayment plan.

Asset Retention

Chapter 7 may result in the loss of non-exempt assets, while Chapter 13 allows you to keep your assets as long as you adhere to the repayment plan.

Impact on Credit

Both types of bankruptcy will affect your credit score. Chapter 7 remains on your credit report for up to 10 years, whereas Chapter 13 stays for seven years. However, the impact on your credit score can lessen over time as you rebuild your financial profile.

Which Should You Choose?

Your choice between Chapter 7 and Chapter 13 bankruptcy depends on your financial circumstances and long-term goals. If you have significant unsecured debts and limited income, Chapter 7 might be the better option. However, if you're keen on retaining your assets and have a stable income, Chapter 13 could be more suitable.

Practical Advice

Before deciding, consider consulting a local bankruptcy attorney in Warwick, RI. They can provide personalized advice based on your unique financial situation. Additionally, gather all relevant financial documents, including income statements, debt records, and asset listings, to facilitate a comprehensive evaluation of your case.

According to the American Bankruptcy Institute, approximately 63% of consumer bankruptcy filings in the United States are Chapter 7 cases, while 37% are Chapter 13, reflecting the commonality and accessibility of Chapter 7 for many individuals.

Contact Us for More Information

If you're contemplating bankruptcy and need expert guidance, our experienced attorneys in Warwick, RI, are here to help. Contact us today for a consultation and take the first step towards financial recovery.

Why Choose Carl Deluca?

Related Bankruptcy Questions

Other Carl Deluca Services

Carl Deluca provides comprehensive legal services in Warwick,RI. Call (401) 384-0355 for immediate assistance.