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Chapter 7 or 13?

Borrowers who fall into debt may find relief and a fresh financial start by filing for bankruptcy. Bankruptcies under Chapter 7 or Chapter 13 have different consequences.

Chapter 7, also known as liquidation that can clear some or part of debt. However, this option requires surrendering property, cash or other assets. Chapter 13 can also discharge some debt but allows debtors to keep some property and repay debt under a 3 to 5-year repayment plan. Neither filing allows discharge of child support, spousal support or taxes.

Debtors with more resources may qualify for Chapter 13. Debtors are eligible for Chapter 13 but not for Chapter 7 if their monthly income is more than Pennsylvania's median income for a family of their size.

Chapter 13 helps stop the foreclosure process and repay past-due mortgage payments. Debts discharged under Chapter 13 means creditors cannot take collection actions.

Chapter 7 debt, however, is discharged relatively quickly within 90 to 100 days along with the time it takes to complete a credit counseling course. But, discharge under Chapter 13 requires that a debtor completes the 3 to 5-yrear repayment plan where the debtor pledges their disposable income to their plan.

If this plan is not met, the bankruptcy case may be dismissed or converted to a Chapter 7 plan which could result the loss of a home, vehicle or other assets. The debtor may lose Chapter 7 by not paying their taxes or child or domestic support.

A completed Chapter 13 bankruptcy may stay on credit reports for up to seven years but may be viewed more favorably by some creditors. Chapter 7 may remain on reports for up to 10 years. Debtors may be able to obtain a credit card or qualify for a mortgage but may need to pay higher interest rates and fees.

Chapter 7 has other characteristics. Debts discharge under this chapter, with some exceptions, do not have to be repaid and that money can be used to pay for daily expenses. Debtors who cannot afford unpaid debt relief may stop creditors from collecting money, contacting them, continuing garnishing wages, or engaging in lawsuits against their property. However, Chapter 7 may lead to the loss of assets such as cash or property. An attorney can help debtors select the best option. They can help assure their legal rights are protected.

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