Wednesday, February 15, 2012

Bankruptcy: Chapter 7 Versus Chapter 13

It’s stressful enough being in debt, but when a decision is made to consider filing for bankruptcy, new stresses emerge.  It’s a hard decision to make, especially if it is made prior to your bills becoming past due and if it hasn’t affected your credit score yet.  The main question, after the decision to file has been made, is, should a chapter 7 in Atlanta be filed, or a Chapter 13?  One removes all your eligible debt; the other creates a payment plan that is stretched out over three to five years.

According to Berry & Associates, “Chapter 7 bankruptcy is the most common form of bankruptcy and may be referred to as a straight or liquidation bankruptcy.”  A Chapter 7 gives you the ability to start over financially, though there are some debts that are not eligible to be claimed in a bankruptcy, like taxes and student loans, for example.  To qualify for a Chapter 7 bankruptcy in Georgia, there are household income levels that must be met, and if that level is not met, a means test must be done.  A means test is used to determine if you are financially able to repay your debts through a Chapter 13 plan if your income levels are higher than the established threshold for your family size.  If your remaining income after all bills are paid is less than $100, you can generally file for a Chapter 7 bankruptcy.
A Chapter 13 bankruptcy is usually only filed by someone who is not eligible to file for a Chapter 7, though some may opt for it right from the start in order to protect their assets.  A Chapter 13 filing does not discharge your debts immediately.  You will actually pay back your debts, and then when the number of years in repayment is concluded, the remaining debt is discharged.  Once a Chapter 13 is filed, a Trustee is assigned.  The Trustee is who you will mail your payment to each month for the next three to five years.  Some advantages of filing Chapter 13 are:
  • Stops foreclosure proceedings, lawsuits, garnishment, and tax levies
  • You pay what you can afford, rather than having to pay the minimum payments
  •  Non-exempt property will not be confiscated

Filing bankruptcy is a tough decision, but the ability for people to file bankruptcy was created to help people come through financially tough times.  Your credit score will take a hit, but it can be rebuilt.  Discharged debts will remain on your credit report for seven to ten years, and can be used against you during that time, however, once that time frame is over, it can never be used against you again.  Also, bankruptcy laws vary from state to state, so be sure to check the laws in your home state.

I am participating in a blogger campaign by Bucks2Blog and was compensated. However, the views and opinions are my own.  The above post is for informational purposes only, and not intended to substitute for professional legal advice.  If you are considering bankruptcy, please contact a bankruptcy attorney.


  1. Far too often, people file for bankruptcy unaware of what may happen and how bankruptcy will affect their debts and assets. Don’t fall into that trap.
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  3. Very helpful information, it's important for people to know the details before making a decision. Thanks for this.

  4. When you are seriously into debts, you may have to file for bankruptcy. But it is a tough call regarding what type of bankruptcy, a chapter 7 or a chapter 13, you would file for. In case, you do not have the money after paying the regular expenses, then chapter 7 will be ideal for you. Again, in case, after paying the regular expenses, you can make some more payments, then you must opt for chapter 13 bankruptcy.

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