Chapter 7 or Chapter 13: Find Out Which Bankruptcy Fits Your Needs
Deciding between Chapter 7 and Chapter 13 can be confusing. Each option has different rules and outcomes, which might impact your financial future. A bankruptcy lawyer in Las Vegas can guide you through this process and help you find the right solution for your needs.
Chapter 7, known as liquidation bankruptcy, can clear away most debts, but you might lose some assets. Chapter 13, or reorganization bankruptcy, lets you keep your property while paying off debts over time. Understanding these differences is crucial for making the best choice for your situation.
Quick Summary:
- Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, involves a court-appointed trustee selling the debtor’s non-exempt property to pay creditors. After the process, most of the debtor’s debts are eliminated, except for certain debts like student loans and taxes.
- Chapter 13 bankruptcy reorganizes debts, allowing the debtor to repay creditors over three to five years according to a repayment plan. Once the plan is completed, many of the debts included in it will be discharged.
- Chapter 7 and Chapter 13 bankruptcy differ in eligibility, debt handling, and how personal assets are treated. Understanding these differences is crucial for making the right choice.
- Chapter 7 and Chapter 13 bankruptcies have several similarities, including the automatic stay, debt discharge, and impact on credit.
- You should consider filing for bankruptcy in Nevada if you are facing lawsuits from creditors, your monthly debt payments are more than half of your take-home pay, or you can’t see a way to pay off your debt within five years. These signs show it might be time to explore bankruptcy options.
- Chapter 7 is better if you have only unsecured debt, no steady income, or can’t afford a lawyer. It’s also a good choice if you don’t owe non-dischargeable debts and can’t commit to a repayment plan for the next three years.
- Chapter 13 is better if you have many mortgages, debts that can’t be wiped out, or want to catch up on a missed mortgage. It’s also a good choice if you owe money to an ex-spouse, want to keep property not protected by an exemption or have a car loan with a high interest rate or negative equity.
- Chapter 7 suits simple cases, while Chapter 13 is better for complicated bankruptcies.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is often called “liquidation” bankruptcy. In Chapter 7, a court-appointed trustee collects the property of the person filing for bankruptcy (called the “debtor”) and sells any non-exempt property. The money from selling this property is then collected by the trustee and given to creditors to pay off their claims.
When the Chapter 7 process is finished, most of the debtor’s debts will be wiped out, except for some debts that cannot be discharged in bankruptcy. Some of these non-dischargeable debts include student loans and tax debts.
What is Chapter 13 Bankruptcy?
Unlike Chapter 7 bankruptcy, which sells most of a debtor’s assets to pay creditors, Chapter 13 focuses on reorganizing debts. When filing for Chapter 13, the debtor will submit a repayment plan that outlines how they will pay creditors over three to five years.
Once this plan is completed, many of the debts included in the plan will be discharged.
What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 and Chapter 13 bankruptcy differ in eligibility requirements, method of handling debt, and disposition of personal assets. Understanding these key differences is a crucial first step.
Eligibility Requirements
People who want to file for Chapter 7 bankruptcy must first pass a “means test”. This test checks if their monthly income is below the median income for a Nevada household of similar size. If it is, they can file under Chapter 7. If their income is above the state median, they may still qualify by showing their income and debts.
However, those with higher incomes might need to file for Chapter 13 bankruptcy. To qualify for Chapter 13 bankruptcy, people must meet some requirements. They need enough disposable income to support a court-approved repayment plan. Also, under federal law, they cannot have secured debts over $1,149,125 or unsecured debts over $383,175.
Method of Handling Debt
Chapter 7 and Chapter 13 bankruptcy help people manage their debt differently. In Chapter 7 bankruptcy, a person’s property is sold to pay off as much debt as possible. This process can be finished in a few months.
In Chapter 13 bankruptcy, people enter into repayment plans that last up to five years. A person’s remaining eligible debts may be fully wiped out at the end of either process.
Disposition of Personal Assets
How personal assets are treated depends on the type of bankruptcy filed. In Chapter 13 bankruptcy, a person can keep all their property, including secured assets, as long as they stay current on payments.
In Chapter 7 bankruptcy, people lose all personal property except for assets that are considered exempt. In Nevada, people can exempt a set value of certain assets from being sold, such as:
- Personal residences
- Material possessions, including vehicles
- Insurance policies or proceeds
- Pensions
Federal law also sets exemptions that people can claim during Chapter 7 bankruptcy. However, people filing for bankruptcy in Nevada must use the state’s exemptions instead of the federal ones.
How Are Chapter 7 and Chapter 13 Bankruptcy Similar?
Despite their differences, Chapter 7 and Chapter 13 have many of the same effects on the person filing. These similarities include:
The Automatic Stay
When someone files for bankruptcy, the court orders an “automatic stay” which stops collection actions like calls, letters, repossession, foreclosure, and lawsuits.
The Debt Discharge
In Chapter 7, it takes four to six months, and in Chapter 13, it takes three to five years. Both chapters can give a final debt discharge, meaning the person isn’t responsible for unsecured debts left after liquidation or repayment, but secured debts remain.
Impact on Credit
Filing for bankruptcy can lower credit scores. Chapter 13 affects it for seven years, while Chapter 7 affects it for ten years.
The main goal of bankruptcy is the same for all types: to give a fresh start to individuals, families, and businesses struggling with debt.
When Should I Consider Filing for Bankruptcy in Nevada?
You should think about filing for bankruptcy if any of these apply:
- You are facing lawsuits from creditors.
- Your monthly debt payments are more than half of your monthly take-home pay.
- You see no way to pay off your debt within five years.
When is Chapter 7 Bankruptcy Better Suited for Me?
Chapter 7 is a better option if you:
- Only have unsecured debt like credit card debt, medical bills, repossession balances, personal loans, etc.
- Do not have a steady income or do not have enough to pay for housing and food
- Cannot afford to hire a bankruptcy lawyer to represent you in court
- Do not owe any non-dischargeable debts like alimony or child support and are current on your payments
- Cannot commit to a repayment plan for at least the next three years
When is Chapter 13 Bankruptcy Better Suited for Me?
Chapter 13 is a better option if you:
- Have many mortgages
- Have debts that cannot be wiped out
- Are behind on your mortgage and want to catch up
- Owe money to your ex-spouse from a property settlement
- Want to keep property that is not protected by an exemption
- Have a car loan with a high interest rate or negative equity from a trade-in
Which Bankruptcy Chapter is Right for Me?
Generally, Chapter 7 is better for simple cases, while Chapter 13 is for more complicated bankruptcies. Chapter 13 gives you more control and flexibility with certain creditors and if you have non-exempt assets.
However, if you don’t have those kinds of debt or assets or few tangible assets, Chapter 7 is likely the faster and easier option.
Take Control of Your Finances Today!
Navigating bankruptcy can be overwhelming, but you don’t have to face it alone. Riggi Law Firm understands the stress and confusion when choosing between Chapter 7 and Chapter 13 bankruptcy.
Our trusted bankruptcy lawyer in Las Vegas is here to explain your options clearly and help you make the best decision for your financial future.
We are committed to providing compassionate, knowledgeable support every step of the way. At Riggi Law Firm, we treat every client with the care and respect they deserve. Our deep understanding of Nevada’s bankruptcy laws means you can trust us to handle your case with skill and dedication.
Let us help you regain control of your finances and start fresh. Contact Riggi Law Firm today for a free consultation and take the first step toward a brighter future.