Californians have filed for bankruptcy at a high rate throughout 2024, with about 40 out of every 1,000 people having done it. It is easier than ever to contact a Chapter 7 bankruptcy lawyer in the San Fernando Valley or Inland Empire, to kickstart the process.
Are you thinking about filing for bankruptcy? Before you begin, make sure you understand your options for discharging debt. Chapter 7 and Chapter 13 bankruptcy are two worth considering.
Knowing the differences between Chapter 7 bankruptcy vs. Chapter 13 bankruptcy can help you decide which one to choose. It can also provide peace of mind as you begin the process.
Take a look at what sets them apart below.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the main type of bankruptcy Californians typically consider filing.
If you file for Chapter 7 bankruptcy, an injunction arises that prevents creditors from continued collection of your debts. It will prevent creditors from:
- Contacting you about unpaid debts
- Seizing your property
- Garnishing portions of your paychecks
- Foreclosing on your home or evicting you from it
- Shutting off your utilities
A trustee is also assigned to oversee your Chapter 7 case. They will review your finances carefully, paying close attention to your assets and debts.
In the majority of cases, a trustee will review your bankruptcy papers, examine you at an administrative hearing and file a report that there are no assets to administer.
Through Chapter 7, you can discharge many unsecured debts. You can usually discharge:
- Credit card debt
- Medical debt
- Personal loan debt that is not secured by collateral
Chapter 7 bankruptcy will significantly impact your credit score in the short term. You’ll likely see your score drop dramatically shortly after you file for it.
Chapter 7 bankruptcy will also remain on your credit report for up to 10 years. However, it is a valuable option for anyone struggling to manage unsecured debt as you will be able to rebuild your credit quickly.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is another type of bankruptcy available to individual Californians.
If you file for Chapter 13 bankruptcy, an automatic stay is placed on your debts, just like a Chapter 7. It will stop creditors from:
- Collecting creditor payments from you
- Garnishing your hard-earned money
- Repossessing your assets
- Taking legal action against you
- Putting a bank levy against you in place
Like Chapter 7, a trustee will also be appointed in your Chapter 13 case. However, the chapter 13 trustee’s primary role is to collect your monthly plan payments and act as a disbursing agent to your creditors.. In Chapter 13, you propose a plan to repay your creditors. Only individuals can be debtors in Chapter 13, which is why Chapter 13 bankruptcy is often called a “wage earner’s plan.”
With Chapter 13 bankruptcy, you may have to repay only a portion of many of your debts. However, certain debts won’t be discounted during a Chapter 13 case, including child support, tax debts, alimony, arrears on mortgages and car loans.
Chapter 13 bankruptcy is a powerful tool allowing you to repay your creditors through a court structured plan without interest, which can immediately lower your current monthly payments.
Chapter 13 bankruptcy will also appear on your credit report for up to 10 years. But when used correctly, it can eventually work wonders for those rebuilding credit.
What Differentiates Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy?
At first glance, the differences between Chapter 7 bankruptcy vs. Chapter 13 bankruptcy might not seem obvious. Each type can erase at least some of your debt, but they do this differently.
Chapter 7 bankruptcy seeks to discharge as many debts as possible while allowing you to preserve your assets. In most cases there is no liquidation even though Chapter 7 is referred to as a “liquidation” chapter. Chapter 13 bankruptcy, meanwhile, aims to make debt more manageable by devising a plan for paying it back, allowing you to catch up on mortgage payments where you may have fallen behind and allowing you to repay certain debts in full without interest.
Another big difference between Chapter 7 bankruptcy vs. Chapter 13 bankruptcy is that a Chapter 13 case will call for you to meet more eligibility requirements. Here are several of them:
- You must be an individual with regular income.
- You must have no more than $1,257,850 in secured debts and $419,275 in unsecured debts.
- You must have filed federal and state income tax returns over the last four years.
Those filing for Chapter 7 bankruptcy must also meet eligibility requirements, but they are less extensive. It further separates Chapter 7 and Chapter 13 bankruptcy.
Who Can Benefit From Chapter 7 or Chapter 13 Bankruptcy?
Now that you better understand what differentiates Chapter 7 bankruptcy vs. Chapter 13 bankruptcy, you might know which option is right for your specific financial situation. Each option can benefit different groups of people.
You may still be unsure which type is better for you. Knowing who stands to benefit more from each type will help.
Here is who can benefit from Chapter 7 bankruptcy:
- Individuals with debt that can be discharged, such as credit card debt or medical debt
- Those with assets that are protected or fully encumbered
Here is who can benefit from Chapter 13 bankruptcy:
- High-income individuals
- Those with assets that would not otherwise be protected in Chapter 7
- Individuals who owe large tax debt
Who Should You Trust To Help You File for Bankruptcy?
No matter which type of bankruptcy you file, you shouldn’t do it alone. Instead, search for the right attorney to handle your case.
Janus Law can offer the assistance you need. We can provide additional information on the different types of bankruptcy and ensure you submit the proper paperwork while filing for it. We can also address any further questions or concerns you have about the process.
Contact Us for More Information on Filing for Bankruptcy
Filing for bankruptcy is often stressful. It can also be incredibly challenging if you are unaware of the differences between Chapter 7 and Chapter 13 bankruptcy. To avoid potential issues, educate yourself on these two options.
Let Janus Law explain them further. We can offer the legal guidance you need as you seek to regain control of your finances and build a much brighter future.
Reach out to us at (818) 672-1778 to find out more about eliminating or reorganizing your debt while preserving your wealth through Chapter 7 bankruptcy vs. Chapter 13 bankruptcy.
At Janus Law, we guide our clients to new financial beginnings.
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