Chapter 7 Vs. Chapter 13 Bankruptcy: What’s the Difference?

Of all the things you could declare in life, bankruptcy is certainly the least fun. Not only are you likely to lose your property after declaring bankruptcy, but it’ll destroy your credit rating for a good decade or so. However, not all bankruptcy claims are created equal, with each one having some distinctions that are worth remembering.

If you’ve ever been on the brink of declaring bankruptcy, you know how awful it is to feel so financially insecure. Between your family, your job, and your property, there’s a lot potentially at stake. Fortunately, Drucker & Mattia’s team of attorneys can help you navigate this financial crisis so that you can come out on the other side relatively unscathed. Give us a call today at 718-458-2312 to schedule your free consultation.

How Chapter 7 Bankruptcy Works

Ever heard of a liquidation bankruptcy? Because that’s exactly what a Chapter 7 bankruptcy claim is. If you declare Chapter 7 bankruptcy, most of your property or other high-value assets will be sold to help repay your debts. People with lower incomes who have no other means to pay off their debts often declare this type of bankruptcy. In fact, individuals’ disposable income amount must fall below a certain threshold in order to be eligible to file. However, businesses can file for Chapter 7 bankruptcy as well, in addition to individuals.

One of the biggest drawbacks to filing for Chapter 7 bankruptcy, though, is that there’s no way to catch up on missed car or house payments, so your property will still be in jeopardy of repossession or foreclosure, respectively. What’s more, there are no lien stripping or loan cramdown options for Chapter 7 bankruptcy, meaning you’ll be on the hook for the full amount on the paper from start to finish.

How Chapter 13 Bankruptcy Works

Chapter 13 bankruptcy, on the other hand, is known as a reorganization bankruptcy. Unlike Chapter 7 bankruptcy, your property will not be sold off to pay your debts. Instead, the court will construct a payment plan for you, and if you can successfully complete the payment plan, then you’ll be able to keep your property.

Better yet, you can also eliminate any unsecured debts by discharging them, or basically getting rid of them. However, you can only do this after you’ve paid a significant amount of your debt back, so creditors can see that you’re making good on your word and are therefore eligible for debt discharging.

Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy is only available to individuals, including sole proprietors. In this same vein of dissimilarity, individuals can catch up on missed car or mortgage payments after declaring Chapter 13 bankruptcy. In order for individuals to be eligible for this type of bankruptcy, they cannot have unsecured debts totaling more than $3,947,225 or secured debts totaling more than $1,184,200.

How Drucker & Mattia Can Help You

Declaring bankruptcy is hardly a picnic, but it’s nearly impossible to figure out on your own. Fortunately, there’s a team of shrewd, seasoned attorneys here at Drucker & Mattia ready to guide you through every step of the process. If you’re ready to learn more about how we can best serve you, give us a call at 718-458-2312 today.