How to Choose Between Chapter 7 and Chapter 13 Bankruptcy in New York
When facing financial difficulties, individuals in New York often find themselves considering bankruptcy as an option for relief. Chapter 7 and Chapter 13 bankruptcy are the two primary types of bankruptcy available under federal law, and choosing between them can significantly impact your financial future. Understanding the differences between these two options is crucial to making an informed decision.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as "liquidation bankruptcy," is designed for individuals with limited income who cannot repay their debts. Under Chapter 7, the court appoints a trustee to evaluate your finances and may sell off non-exempt assets to pay creditors. However, many individuals qualify for exemptions that allow them to keep significant property, including their home and car.
Advantages of Chapter 7 Bankruptcy:
- Quick resolution: Chapter 7 cases typically take a few months to complete.
- Discharge of most unsecured debts: Debts such as credit card bills, medical expenses, and personal loans can often be wiped clean.
Disadvantages of Chapter 7 Bankruptcy:
- Not all debts can be discharged: Certain debts, such as student loans, tax obligations, and child support, usually cannot be eliminated.
- Loss of property: You may have to sell non-exempt assets to satisfy creditors.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also referred to as "reorganization bankruptcy," is geared toward individuals with a regular income who can afford to repay a portion of their debts over time. This type of bankruptcy allows you to keep your property and establish a repayment plan that lasts three to five years. Chapter 13 is often a suitable option for those who wish to avoid foreclosure on their homes or who have fallen behind on car payments.
Advantages of Chapter 13 Bankruptcy:
- Retention of assets: You can keep your property while repaying your debts under a court-approved plan.
- Protection from foreclosure: Chapter 13 can help you catch up on missed mortgage payments and protect your home from foreclosure.
Disadvantages of Chapter 13 Bankruptcy:
- Lengthy process: The repayment plan typically lasts between three and five years.
- Not all debts can be discharged: While some unsecured debts can be eliminated, others may still need to be repaid.
Factors to Consider When Choosing Between Chapter 7 and Chapter 13:
- Income Level: Your current income and financial situation play a significant role in determining which type of bankruptcy is feasible. Chapter 7 is available to lower-income individuals, while Chapter 13 requires a steady income.
- Asset Ownership: If you own significant non-exempt assets that you want to keep, Chapter 13 might be the better choice as it allows you to retain your property.
- Debt Type: Assess the types of debt you have. For example, if your debts are primarily unsecured, Chapter 7 may be advantageous; however, if you are behind on your mortgage or car payments, Chapter 13 can provide a way to catch up.
- Future Financial Goals: Consider how each bankruptcy type aligns with your long-term financial goals and how quickly you want to resolve your debts.
Consulting with a Bankruptcy Attorney:
Choosing between Chapter 7 and Chapter 13 bankruptcy can be complicated, and the repercussions of each choice can impact your financial situation for years to come. It is highly recommended to consult with a bankruptcy attorney who specializes in New York bankruptcy laws. They can provide personalized advice based on your unique circumstances and help you navigate the complex process.
In summary, the decision between Chapter 7 and Chapter 13 bankruptcy depends on various factors, including income, asset ownership, and the types of debts you carry. By taking the time to understand your options and seeking legal advice, you can make a well-informed choice that leads to a brighter financial future.