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Chapter 7 vs Chapter 13 bankruptcy: which one might be best for you?

by | May 19, 2021 | Chapter 7 |

As we have discussed before in this blog, the main options for personal bankruptcy protection for people in Maryland are called Chapter 7 bankruptcy and Chapter 13 bankruptcy. Both forms of bankruptcy have the same goal of getting you out of debt and giving you and your family a fresh start financially. But they work differently, and choosing which one to pursue is not as simple as flipping a coin.

Chapter 7: liquidation bankruptcy

Chapter 7 bankruptcy is also called “liquidation bankruptcy” because it discharges most types of debt completely. It takes a relatively short time, typically a few months. One of the downsides is that some of your property may have to be sold to partly repay your creditors, though your primary residence is generally protected. Also, a Chapter 7 bankruptcy filing can stay on your credit report for up to ten years. There are things you can do to start repairing your credit right away. But you may have a hard time securing a mortgage, auto loan or credit card without having to pay a higher interest rate, at least for a while.

Also, you must pass an income-based means test to qualify for Chapter 7 bankruptcy.

Chapter 13: reorganization bankruptcy

The other option is known as Chapter 13 bankruptcy, or “reorganization bankruptcy.” Instead of discharging your debts all at once, under Chapter 13 bankruptcy, you and your attorney negotiate a manageable repayment plan with your creditors. This takes longer to complete than Chapter 7 bankruptcy — usually three to five years — but it does not require you to sell your home or vehicles. Chapter 13 bankruptcy is usually the better choice for people with a steady income who can make monthly payments. It also tends to have less impact on your credit score than Chapter 7 bankruptcy and lasts on your credit report for up to seven years.

Still have questions about which form of bankruptcy protection is right for you? Consider contacting a bankruptcy attorney for a consultation.

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