Filing for bankruptcy can be a scary and daunting experience, but it doesn’t have to be. Different types of bankruptcies can be filed depending on your unique situation. Two common individual bankruptcies are chapters 7 and 13.
So, what’s the difference between the two? Basically, with a chapter 7 bankruptcy, you can discharge certain debts while a chapter 13 bankruptcy primarily helps you reorganize your debt.
Now, say you’ve used a Chapter 7 bankruptcy to discharge debts in the past but find yourself in a situation where you need additional time to catch up on debts that weren’t discharged. Or maybe you just need a more manageable repayment plan.
How Do Chapter 7 And Chapter 13 Bankruptcy Differ?
Bankruptcy is a process that allows you to eliminate your debt and start fresh. Depending on the type of bankruptcy you file, your assets may be sold to repay your creditors. In a liquidation bankruptcy (also called a “Chapter 7”), your nonexempt property is sold and the proceeds are distributed to creditors. This can include your home, car, pension, personal belongings, and even jewelry. Each state has its own set of exemptions, which determine what property you are allowed to keep. You may also have the option of choosing between state and federal bankruptcy exemptions.
In contrast, a reorganization bankruptcy (known as a “Chapter 13”) does not require the sale of your assets. Instead, you will develop a repayment plan to repay some, none, or all of your debt over three to five years. Once you have completed the repayment plan, some of your debts may be discharged.
After filing for Chapter 13 bankruptcy, your creditors will be grouped into a single pool. You will then make monthly payments to a trustee, who will distribute the funds to your creditors.
Is It Possible To File For Bankruptcy More Than Once?
Applying for bankruptcy is not as straightforward as many people think. There are different types of bankruptcy, and each has its own set of rules. One important factor to consider is something known as the 2-4-6-8 rule.
- Filing chapter 13 after chapter 13: Two years.
- Filing chapter 13 after chapter 7: Four years.
- Filing chapter 7 after chapter 13: Six years.
- Filing chapter 7 after chapter 7: Eight years.
Chapter 13 bankruptcy can be filed immediately after a Chapter 7 bankruptcy, which is also known as a Chapter 20 bankruptcy. In a Chapter 20 bankruptcy, you will not receive a discharge since you have not waited the full four years. However, this type of bankruptcy can give you the time you need to pay down your debt.
When Can You File For Chapter 13 Bankruptcy After Filing For Chapter 7?
You can get your debts discharged through chapter 13 bankruptcy, but you will have to wait four years after filing for chapter 7 bankruptcy.
There is a four-year waiting period to file for Chapter 13 bankruptcy protection after having your debts discharged in a Chapter 7 bankruptcy. However, this waiting period does not apply if no debts were discharged in your previous Chapter 7 filing.
Is It A Good Idea To File For Chapter 13 After Filing For Chapter 7?
Filing for chapter 13 bankruptcy protection can help you get a fresh start by discharging most of your debts. However, you must wait at least four years after filing for chapter 7 before you can qualify. By then, you may be able to take advantage of a low monthly payment plan and receive a full discharge of any remaining balances after completing the three- to five-year plan.
There are many options available for those struggling with debt. For some, Chapter 7 bankruptcy may be the best option. However, certain types of debt cannot be discharged in a Chapter 7 bankruptcy, such as student loan debt, income tax debt, and child support payments.
When Is Filing For Chapter 13 After Chapter 7 A Good Idea?
There are several reasons why you might choose to file for chapter 13 bankruptcy after previously filing for chapter 7.
- Back taxes: With chapter 13, you can get rid of all your debts and still have five years to pay any back taxes that weren’t dischargeable. This way, you can get your finances in order and start fresh.
- Student debt: While filing for bankruptcy may seem like a last resort, it can provide some relief from certain debts. For example, under chapter 13, the payment plan for student loans or alimony arrears can be spread out over five years. This can be a helpful reprieve for those struggling to make ends meet. As Rosenblum explains, “Filing for chapter 13 allows you to avoid wage garnishments. Rather than making your regular student loan payment, you make your chapter 13 plan payment, which will be lower.
- Late payments: Filing for bankruptcy can be stressful and complicated, but it may be the best option for you depending on your financial situation. Chapter 7 bankruptcy allows your mortgage lender to foreclose on your property, so you may want to consider filing for chapter 13 bankruptcy instead. With chapter 13 bankruptcy, you are typically allowed to keep the property that you are making payments on. This can give you more time to catch up on your mortgage payments and get back on track financially.
- Lien stripping: The process of eliminating junior liens, like second mortgages, can be a difficult one. Not all courts allow for such eliminations, so it is important to consult with a bankruptcy professional to see what makes sense for your particular situation.
Final Thoughts
Bankruptcy can provide relief from debt, but it is not a cure-all. Alimony and child support, for example, cannot be discharged through the process, nor can income taxes less than three years overdue. Student loans—one of Americans’ most significant debts—are also not dischargeable.
Even after filing for chapter 7 bankruptcy, you may still have some debts that you need to take care of. In this case, you might be able to file for chapter 13 bankruptcy. However, before taking this step, it’s important to consider how it will affect your finances in the long term.