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Bankruptcy: The Photo or the Movie

A visual representation of the Bankruptcy Process

When it comes to bankruptcy, Chapter 7 and Chapter 13 are two common options individuals may consider. To better understand the differences between these two chapters, it can be helpful to think of Chapter 7 as a photo and Chapter 13 as a movie.

Chapter 7 bankruptcy is like a photo because it provides a snapshot of your financial situation at the time of filing. In this chapter, your non-exempt assets are liquidated to pay off your debts. It offers a relatively quick process, typically lasting around three to six months. A Chapter 7, with relatively few exceptions which will be discussed in future blog posts, deals with your assets and income as they are on the date you file. Increases or decreases in income that occur after the filing of the case do not affect the case.  However, it is important to note that not everyone qualifies for Chapter 7 bankruptcy as there are income limitations.

Chapter 7 Bankruptcy is like a photo

On the other hand, Chapter 13 bankruptcy is like a movie because it involves creating a repayment plan based on either your disposable income or the value of your non-exempt assets over a period of three to five years, but unlike a Chapter 7, changes to your finances that occur while the plan is pending may influence your payment amount to the court. Just as in a movie there may be twists and turns, a Chapter 13 plan rarely looks the same at the end as it did at the beginning. Life happens.

Chapter 13 allows you to keep your assets while restructuring your debts into manageable payments. Chapter 13 also provides an opportunity for individuals with regular income to catch up on missed payments for secured creditors such as those related to real property or car and regain control of their finances or in some cases reduce the amount of principal on a secured debt when the value of the assets securing the payment is less than what is owed.

Chapter 13 Bankruptcy as a Movie

Ultimately, the choice between Chapter 7 and Chapter 13 depends on individual circumstances and financial goals. Consulting with an experienced bankruptcy attorney can help determine which option is best suited for one’s specific situation. At the F&L Law Group our attorneys have handled more than 5,000 bankruptcy clients’ cases and have the experience and expertise to navigate the choice between Chapter 7 and Chapter 13 and put you on the path to a financial fresh start.

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