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Chapter 7 vs. Chapter 13 Bankruptcy

Consumers generally file for relief under the Chapter 7 or Chapter 13 bankruptcy. In a nutshell, the Chapter 7 bankruptcy is for low-income filers who cannot afford to repay their unsecured debt. In contrast, the Chapter 13 bankruptcy is for people who have sufficient income to pay off all or a portion of their debts over a period of 3 to 5 years.

Chapter 7 Bankruptcy

In order to qualify for relief under a Chapter 7, the debtor must first pass the "bankruptcy means test." If your income is below the median income for North Carolina, then you automatically qualify. If your income exceeds the thresholds set for a household of your size, then you will have to file for a Chapter 13 instead.

Under a Chapter7, many types of unsecured debts are "wiped out" or erased by the bankruptcy discharge. Such debts that can be discharged in a Chapter 7 include: medical debt, credit card debt, personal loans, certain taxes, and collection accounts. The types of debts that cannot be discharged include:

  • Child support
  • Alimony payments
  • Student loan debt
  • Recent taxes
  • Court-ordered fines
  • Victim restitution

If the bulk of your debt consists of dischargeable unsecured debt and you pass the means test, then a Chapter 7 may be right for you.

Chapter 13 Bankruptcy

With a Chapter 13, you are put on a repayment plan that lasts for 3 to 5 years depending on your debt and monthly disposable income. With a Chapter 13, you may pay all or only a portion of your debt over the life of the plan.

Chapter 13 does offer some advantages over a Chapter 7; for example, it allows debtors the opportunity to save their homes from foreclosure, however, debtors still have to make their mortgage payments on time each month according to the terms of the plan.

Debtors can reschedule secured debts (other than a mortgage for their primary residence), thereby allowing them to extend them over the life of the Chapter 13 repayment plan, which may lower their overall payments, making them more affordable.

Contact a Charlotte bankruptcy attorney today!

At Schwilm Law Firm, PLLC, we believe that filing for bankruptcy is a big decision to make, and it should always be an informed one. If you are currently struggling with debt, we encourage you to contact our office to schedule a free consultation with Attorney Schwilm.

We would be more than happy to answer your questions and thoroughly explain your debt relief options. There is light at the end of the tunnel and your journey begins here – call now!