Chapter 13 vs. Chapter 7 Bankruptcy: What’s Best for You?

When faced with overwhelming debt, deciding between Chapter 13 and Chapter 7 bankruptcy can feel like navigating a legal maze. Both options offer debt relief, but they work in very different ways. Understanding the key differences is crucial to making the right choice for your financial future. At the Law Office of Rowena N. Nelson, LLC, we’ve guided countless individuals and businesses through this process, helping them regain control of their finances with confidence.

Chapter 7 Bankruptcy: The “Liquidation” Option
Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy” because it involves selling non-exempt assets to pay off creditors. However, many people are surprised to learn they can keep most—or even all—of their property, depending on state exemption laws.
Key Features of Chapter 7:

• Quick Process: Typically completed within 3-6 months.
• Debt Discharge: Wipes out most unsecured debts like credit cards, medical bills, and personal loans.
• Income Requirements: You must pass the means test to qualify, which compares your income to the state median.
• No Repayment Plan: Once the process is complete, your eligible debts are discharged without the need for ongoing payments.
  When Chapter 7 Might Be Right for You:
• You have little to no disposable income.
• Your debt is primarily unsecured (credit cards, medical bills).
• You’re looking for a fresh start quickly.
  At Rowena N. Nelson, LLC, we’ll assess your financial situation to determine if you meet the qualifications and explain how your assets will be affected.

Chapter 13 Bankruptcy: The “Reorganization” Option
Unlike Chapter 7, Chapter 13 bankruptcy allows you to keep your property while you repay some or all of your debts over a 3-5 year period under a court-approved repayment plan. It’s often called the “wage earner’s plan” because it’s designed for individuals with a steady income.
Key Features of Chapter 13:

• Debt Reorganization: You make monthly payments based on your income, expenses, and the amount of debt.
• Asset Protection: You can keep your home, car, and other valuable assets—even if you’re behind on payments.
• Stops Foreclosure: Filing for Chapter 13 can halt foreclosure proceedings, giving you time to catch up on missed mortgage payments.
• Eligibility Limits: There are debt limits for Chapter 13—both secured and unsecured debts must fall within certain thresholds.
  When Chapter 13 Might Be Right for You:
• You have regular income and can afford to make monthly payments.
• You’re behind on mortgage or car payments and want to avoid foreclosure or repossession.
• You have non-dischargeable debts (like certain taxes or child support) that need to be managed.
  At the Law Office of Rowena N. Nelson, LLC, we’ll work with you to create a feasible repayment plan tailored to your situation.

Which Bankruptcy Option Is Best for You?
Choosing between Chapter 7 and Chapter 13 comes down to your financial goals:

• Need a quick, fresh start with no repayment obligations? Chapter 7 may be the way to go.
• Want to catch up on missed payments and keep your property? Chapter 13 might be the better fit.
  Both options can stop collection calls, wage garnishments, and lawsuits, but the long-term impact on your credit and finances varies. That’s why personalized legal advice is key.
  At the Law Office of Rowena N. Nelson, LLC, we don’t believe in one-size-fits-all solutions. We’ll take the time to understand your unique situation and guide you toward the option that aligns with your financial goals.
  Facing debt stress? Let’s talk. Visit www.rnnlawmd.com to schedule a consultation and take the first step toward financial freedom.