Filing For Bankruptcy: Chapter 7 VS Chapter 13 - Bolinske Law
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Filing For Bankruptcy: Chapter 7 VS Chapter 13

Filing For Bankruptcy: Chapter 7 VS Chapter 13

Have you come to the point in your financial life where you aren’t sure where to turn or how to proceed? Are you thinking that filing for bankruptcy may be your only choice?

There are many people who file for bankruptcy everyday and if this is the path you decide to take you won’t be alone.

However, it is important when considering filing for bankruptcy that it is your last and final option when trying to get rid of your debt. While filing for bankruptcy can help you tackle the debt that may be taunting you, it can also have the potential hurt you.

If you decide filing for bankruptcy is your one chance at starting over you’re probably going to choose between a Chapter 7 and a Chapter 13 filing.

What are they?

A Chapter 7 and a Chapter 13 are two types of bankruptcies you can file for. They are the two main types of filings you’ll hear about when you research bankruptcies. The chances of your personal bankruptcy falling into one of the two are pretty high.

If you are a business you’ll file for a Chapter 11. This allows you to maintain control while your business goes through the process of being reorganized and restructured. In some cases reorganization can’t be agreed upon so a Chapter 11 will be converted to a Chapter 7.

The business will then go into liquidation and be sold off. This is unfortunately the case with most Chapter 11 filings.

Chapter 7

A Chapter 7 filing by itself is really meant for people who’s debt to income ratio is low. It gives them a way to get rid of the qualifying debt and move on to bettering their credit quicker.

A typical Chapter 7 filing takes around 3 to 6 months to complete and the filer emerges almost debt free, except for the debts the bankruptcy court can’t absolve.

Chapter 13 

A Chapter 13 filing is a little more complicated than a Chapter 7. However, it is the one most people who file for bankruptcy end up going with. While the filing process only takes a few months the full Chapter 13 takes up to 3 to 5 years to complete.

In this time you’re given a payment plan based on all the debt that you owe excluding any property you might own. During a Chapter 13 filing you will pay back most of the debt that you owe.

Because you pay back most of the debt you owe rather than getting it absolved a Chapter 13 bankruptcy looks slightly better on your credit. This means with a Chapter 13 filing there is a chance that it can get removed from your credit at the 7 year mark rather than waiting a whole 10 years. Which is how long a Chapter 7 will stay on your credit history no matter what.

Which is Better?

Determining which filing is better depends on your situation. No matter what type of bankruptcy you file you’ll never be able to get rid of student loans, alimony or child support, or any fraudulent debt you may have incurred.

You also have to think about which type of filing you would qualify for. This is mostly determined by how much you make. While a Chapter 7 may be ideal because it takes less time it is possible to make too much money to qualify for a Chapter 7 filing. If this is the case you will probably file for a Chapter 13.

How Do They Help?

Both types of filings are important because they help you get a handle on your debt and come up with a solution of getting free of it. Whether it’s a quick process with a Chapter 7, or a lengthy process with a Chapter 13, it’s important you go through with the bankruptcy completely.

There are many people who start a Chapter 13 bankruptcy and never complete the payments. This is where filing for bankruptcy can be dangerous.

It’s important that you know exactly what you’re getting into when filing for bankruptcy in Minnesota. That’s why we specialize in helping those who are looking to file, have already filed, or those who are recovering after filing.

We are here to answer any questions and offer solid advice when dealing with something as unknown as bankruptcy. It’s good to know where you stand before starting the process to ensure it is a successful one.

1Comment
  • AW
    Posted at 11:10h, 18 June Reply

    Thanks for a very informative article. My cousin lives right outside of Minneapolis and is considering filing for bankruptcy. There is a major difference in how your debt is handled either in a Chapter 7 or Chapter 13. In her instance, she wants to catch up on her debt and may actually make too much money to qualify for a Chapter 7.

    Chapter 13 may be the best option for her. I think more people need to know how Chapter 13 helps you to re-organize your debt and that it can be removed from your credit report after a few years. I’ll forward this article to her so she can read it for herself as well as get in touch with you for more information.

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