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What’s the difference between Chapter 7 and 13 bankruptcy?

If you struggle to pay your bills each month, you are not alone. There are a number of situations which can contribute to financial problems for families in New York. Some people, used to a higher standard of living, can no longer survive on a reduced income after a job change. Others have simply accumulated far too much consumer debt, such as credit cards.

Up debt's stream without a paddle

Instead of paying your balance in full each month, you find yourself struggling just to make the minimum payments, while interest and hefty fees are assessed against your balance, making the amount you owe continue to go up over time.

If you can't meet your obligations or if you're deciding between buying groceries and paying on your debts, it may be time to consider bankruptcy. Thousands of people in New York are granted bankruptcy relief every year. You likely have a lot of questions. Can you keep your home? Will you get forced to sell a lot of your possessions? What debts can be discharged?

Most importantly, should you file for Chapter 7 or Chapter 13 bankruptcy? Knowing the difference between these two kinds of bankruptcy can help you make an informed decision about your financial future and how to handle your debts.

Chapter 7 bankruptcy is for lower income people

Chapter 7 bankruptcy is what most people think of when they think of bankruptcy. You file a petition with the courts, pass a means test, complete credit counseling services and eventually the courts discharge your debts. Discharging debts means that while you still technically owe them to your creditors, they can no longer take steps to collect the debt or report it as outstanding on your credit report.

Your income must fall below the average or median annual income in New York, which is $47,414 for one person, $59,631 for two people, $70,151 for three or $83,614 for four.

You should tally up all income for the last six months and double it. If it falls below the median for your family size, you should qualify for filing Chapter 7. If your income is over that amount, you may still be able to file, but you will need to take a means test before doing so.

There are limits to what assets you can retain, from personal possessions to equity in your home. Assets above the limit may get sold by the courts to pay your creditors.

Chapter 13 allows you a chance to get payments under control

Unlike Chapter 7, Chapter 13 bankruptcy does not have limits on income or assets. Instead, Chapter 13 is a way to restructure your debt. You create a more reasonable repayment schedule, focused on paying down debts while still handling ongoing cost of living expenses. Typically, these repayment plans will last between three and five years.

Chapter 13 bankruptcy provides you with time to get back on your feet financially, get caught up on missed housing payments and get out from under an impossible monthly debt load.

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Peter R. Scribner, Esq | 1110 Park Avenue | Rochester, New York 14610
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