What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy in Pennsylvania?
You may be surprised to learn that there are different types of bankruptcy. Each type is called a “chapter.” Most people who file for bankruptcy in Pennsylvania use either Chapter 7 or Chapter 13. It is crucial to understand how they are different, so that you are better able to select the best type of bankruptcy for you. Read on to learn more about these common types of bankruptcy, how they differ from each other, and some of the traits they share in common. If you have questions about filing bankruptcy in Pennsylvania, contact the Philadelphia bankruptcy lawyers of Young, Marr, Mallis & Associates today for a free legal consultation.
What Chapter of Bankruptcy Should I File in Pennsylvania?
The answer to this question is different for everyone, because it depends on factors that inevitably vary from person to person. When weighing the differences between Chapter 7 and Chapter 13 – differences our Berks County bankruptcy attorneys will begin to explore in just a few moments – be sure to consider your answers to the following questions:
- Are you looking to prevent foreclosure on your home?
- Do you have certain assets that you are trying to protect?
- Do you currently have a steady source of income?
- Do you want to protect your car or truck from being repossessed?
- How quickly do you need debt relief?
- What financial resources do you have at your disposal?
- What types of debts do you hope to reduce or get rid of?
As you’ll see from the rest of this article, your answers to these questions will influence which chapter of bankruptcy you ultimately file. Working with a Chapter 7 bankruptcy lawyer or Chapter 13 bankruptcy lawyer will help to ensure that your case proceeds as efficiently as possible.
How is Chapter 7 Different from Chapter 13 Bankruptcy?
On the surface, Chapter 7 and Chapter 13 seem similar. For example:
- Both are versions of bankruptcy.
- Both are controlled by federal laws.
- Both require debtors to take financial classes.
- Both grant opportunities to wipe out debt.
However, while both chapters share the same goal destination – debt relief and improved financial health – they follow different routes to get there.
How Does Chapter 7 Bankruptcy Work?
Chapter 7 is the fastest and most straightforward version of personal bankruptcy. Unsurprisingly, Chapter 7 is also the most popular type of bankruptcy. (For example, the U.S. Bankruptcy Court for the Eastern District of Pennsylvania reported that 4,581 Chapter 7 cases were filed during the 2017 fiscal year, slightly more than the 4,206 Chapter 13 cases filed during the same period.)
If you file for Chapter 7 in Pennsylvania, your case should be completed in approximately four to six months, provided you follow the court’s rules and obey federal bankruptcy regulations. When you file Chapter 7, the goal is to obtain something called a “discharge,” which means that the bankruptcy court has released you from your liability for “dischargeable debts.” In other words, a bankruptcy discharge frees you of the obligation to repay dischargeable debts.
The question is, which debts are dischargeable? Fortunately, most debts can be discharged in Chapter 7, including medical bills, credit card debt, personal loans, and business debt. Several types of debt are nondischargeable under federal law, which means they cannot be wiped out by bankruptcy. Examples of nondischargeable debts in Chapter 7 include alimony, child support, and in most cases, tax debts and student loans.
Chapter 7 is a “liquidation,” which means that a court-appointed bankruptcy trustee can sell certain belongings to pay your creditors. But don’t panic – most people who file Chapter 7 can keep many or even all of their belongings, either by using bankruptcy exemptions to shield assets, or because the trustee determines it is not practical to sell them.
How Does Chapter 13 Bankruptcy Work?
Chapter 13 bankruptcy takes three to five years to complete, and is more complex than Chapter 7. However, it is still the preferable option for many debtors.
Unlike Chapter 7, Chapter 13 requires debtors to create a long-term plan for repaying certain debts. This plan lasts from three to five years, depending on your unique financial situation. Since the plan gives you time to make up late payments, such as mortgage arrears, Chapter 13 could potentially enable you to stop your home from being foreclosed on, or to stop your car from being repossessed. If your main goal is to prevent foreclosure, Chapter 13 is likely the better filing option.
Because Chapter 13 requires you to make ongoing payments, you will need to prove that you have adequate resources to cover the terms of the plan. If you have low income or limited resources, you might need to file under Chapter 7. Likewise, if you earn a high level of income or have substantial resources, you might need to file Chapter 13.
When you come to the end of your plan, the bankruptcy court should discharge the remaining dischargeable debts. The same debts are dischargeable in Chapter 13 as in Chapter 7. However, Chapter 13 also allows you to discharge a few additional debts that cannot be eliminated in Chapter 7, such as homeowners’ association fees.
Pennsylvania Bankruptcy Lawyers Handling Chapter 7 and Chapter 13 Cases
Every person who files for bankruptcy has a unique set of goals and challenges. Our Bucks County bankruptcy lawyers will take the time to learn why you are thinking of bankruptcy, what your financial background is, and what you hope to achieve by filing. We can help you make an informed decision about when to file, which chapter is optimal, and whether there are suitable alternatives.
Young, Marr, Mallis & Associates handles Chapter 13 and Chapter 7 cases throughout southeastern Pennsylvania, including Bucks County, Berks County, Montgomery County, and Philadelphia. For a free consultation with our experienced Philadelphia bankruptcy attorneys, contact us online or call (215) 701-6519 today.