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Plymouth, MI 48170

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What's the Difference Between Chapter 7 or Chapter 13 Bankruptcy?

While declaring bankruptcy is no one’s first choice, it may be the right decision for your situation. But how do you know which type of bankruptcy to file?

Can I File Chapter 7 Bankruptcy?

A business entity or individual can file Chapter 7 bankruptcy as long as disposable income is low enough to page the Chapter 7 Means Test. If it is too high, you would need to file Chapter 13 bankruptcy. With this option, a debtor can sell all non-exempt property to pay creditors. If you do not have any property to sell, your creditors will not receive a dime. That said, with this filing, you will be unable to avoid foreclosure or repossession of your assets. Chapter 7 is often referred to as a liquidation bankruptcy because you are quickly getting rid of all unsecured debts in order to start over with a clean slate.

Can I File Chapter 13 Bankruptcy?

A sole proprietorship or individual can file Chapter 13 bankruptcy if disposable income is too high for Chapter 7 and unsecured debt is under $394,725 and secured debt is under $1,184,200. There are more benefits to filing Chapter 13 if you are eligible. For example, a debtor may keep all assets, as long as payments are made in order to pay off all debts. This option also allows lien stripping (removing unsecured junior liens from real property) and a loan cramdown (reducing principal loan balance on secured debts). Chapter 13 is often referred to as a reorganization bankruptcy because you have the means to pay off some of your debt via a payment plan.

The Bottom Line

The main difference Chapter 7 and Chapter 13 bankruptcy is your disposable income, and your ability to make payments. If your income is too low and you can not make any payments to your creditors, then you are probably filing Chapter 7. If your income is too high to qualify for Chapter 7, and you have the ability to get on some sort of repayment plan, then you are probably filing Chapter 13. If you are still struggling with which type is right for you, be sure to consult a legal professional.

If you're looking for a bankruptcy attorney, contact Vivian Law Firm today. 

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