Chapter 7 vs. Chapter 13 Bankruptcy: Which One is Right for You?

Bankruptcy can be a powerful tool for individuals struggling with overwhelming debt, but choosing the right type of bankruptcy is crucial. The two most common options for individuals are Chapter 7 and Chapter 13 bankruptcy. Each serves a different purpose and has unique requirements. At Sigal Law Firm, we help clients navigate these options and determine the best path forward based on their financial circumstances.

Understanding Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as a “liquidation bankruptcy,” is designed to wipe out most unsecured debts, giving you a fresh start. However, certain eligibility requirements and asset considerations must be met.

Key Features of Chapter 7:

• Fast Process: Most cases are completed within 3 to 5 months.
• Debt Discharge: Eliminates most unsecured debts like credit cards, medical bills, and personal loans.
• No Repayment Plan: Unlike Chapter 13, there is no repayment plan; debts are simply discharged.
• Asset Considerations: Non-exempt assets may be sold to repay creditors, but most people keep their home, car, and personal belongings under Federal/Michigan’s exemption laws.

Who Should Consider Chapter 7?

• Individuals with mostly unsecured debt.
• Those with little or no disposable income after covering basic living expenses.
• People who do not own significant non-exempt assets they wish to protect.

Understanding Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also called a “wage earner’s plan,” allows individuals with regular income to reorganize their debt into a manageable repayment plan over 3 to 5 years.

Key Features of Chapter 13:

• Debt Reorganization: Debts are consolidated into a structured repayment plan approved by the court.
• Asset Protection: You can keep valuable assets like your home and car, even if you are behind on payments.
• Repayment Plan: Based on disposable income, payments are made to a bankruptcy trustee who distributes funds to creditors.
• No Income Limits: Unlike Chapter 7, there are no strict income restrictions, but you must demonstrate enough income to make plan payments.
• Certain Debts Are Not Dischargeable: Child support, alimony, some tax debts, and student loans typically must still be paid.

Who Should Consider Chapter 13?

• Individuals behind on mortgage or car payments who want to avoid foreclosure or repossession.
• Those with steady income who can afford a repayment plan.
• People with non-exempt assets they wish to protect from liquidation.
• Individuals who do not qualify for Chapter 7 due to income.

Choosing the Right Bankruptcy for You

The decision between Chapter 7 and Chapter 13 depends on your financial situation, assets, and long-term goals. If you need to quickly eliminate unsecured debt and have minimal assets, Chapter 7 may be the best choice. If you need to catch up on mortgage payments or protect valuable property, Chapter 13 might be the better option.

At Sigal Law Firm, we understand that every financial situation is unique. Our experienced bankruptcy attorneys can evaluate your case, guide you through the process, and help you make the best decision for your future.

Contact Us Today for a Free Consultation

If you’re considering bankruptcy and need guidance on Chapter 7 vs. Chapter 13, reach out to Sigal Law Firm. We’re here to help you regain control of your finances and build a fresh start.

📞 Call us at 248-220-1234 📧 Email us at bankruptcy@sigallaw.com