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A Chapter 7 or Chapter 13 Bankruptcy: Which Option Is Better for You?

Interviewer: What kind of bankruptcies can individuals file? I’ve heard of a Chapter 7 versus a 13, but what are the differences between the two options?

A Chapter 7 Is Total Debt Forgiveness, a Chapter 13 Requires a Structured Payment Plan

Adam: A Chapter 7 is considered complete debt forgiveness; whereas a 13 is a structured bankruptcy where you are going to make payments to a trustee. They’re going basically set out a budget and it’s a longer process to resolve the 13.

Certain Restrictions Preclude the Filing of a Chapter 7: Income Limits Apply to a Chapter 7 Bankruptcy Filing

There are also some issues as whether a person would be eligible for a chapter seven because it’s complete debt relief at that point in time. They have to fall within set guidelines that dictate how much income they earn to qualify.

Interviewer: What would be the true benefit of filing bankruptcy between 7 and 13?

Adam: Again, a Chapter 7 is the complete debt forgiveness. If they file a 13, they’re going to have payments and they have abided by the plan set up by trustee, who will distribute the payments to different creditors.

Sometimes a person might be filing their second bankruptcy, and in that case, they might not be eligible to file another Chapter 7. They could file a Chapter 13 until they’re outside of that time frame. They could always convert the bankruptcy from a 13 to a 7 if permissible.

You Are Permitted to File for Bankruptcy More Than Once

Interviewer: A person can actually, in their lifetime, file more than one bankruptcy?

Adam: Correct and a seven-year time period applies.

Interviewer: So, subsequent filings would depend upon which one they had filed before?

Adam: If they’re within the seven-year period, the last bankruptcy that they filed determines which one they file next.

A Chapter 13 Bankruptcy Is Fulfilled When You Have Completed the Assigned Payment Plan

Interviewer: A Chapter 13 bankruptcy is where they’re actually making payments.  Once they’ve made a certain amount of payments, will their bankruptcy be complete? They’re making payments but it’s still a bankruptcy?

Adam: You are assigned a bankruptcy trustee in a Chapter 13 filing. The trustee would put together a plan and once they complete the plan then their obligations are fulfilled and the bankruptcy is complete at that time.

By Adam Hunt

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