Managing money isn’t always easy, and some people need more than one chance to get it right. If you’re living a lifestyle with a few comforts you don’t want to give up, or make more money than what income limits allow for filing Chapter 7 bankruptcy, you might be considering the possibility of Chapter 13 bankruptcy in order to give you a new start and help you get a handle on your finances

Is Chapter 13 easier on my credit than chapter 7?

One of the core differences between Chapter 13 and Chapter 7 bankruptcy is that in Chapter 13, you still pay your creditors, while in Chapter 7 most of your assets are liquidated and divvied up the best way possible. This leads many to believe that the mark on one’s credit is less severe with Chapter 13 than it is with Chapter 7. This is not necessarily true. Often Chapter 7 bankruptcy cases are over in a few months, allowing you to begin the rebuilding process. With chapter 13, repayment plans last 3-5 years, which means you will be in bankruptcy for that much longer.

What’s the difference between debt consolidation and Chapter 13?

When you hear the short explanation of what happens with a Chapter 13 bankruptcy, it sounds a lot like debt consolidation. Actually, the two are quite similar but have a few key differences. With a Chapter 13 bankruptcy creditors are court ordered to comply with the terms of the debt settlement, while they have the option of declining under a standard debt settlement plan. Also, with Chapter 13, the interest on your debts stops accruing, so you can pay off what you owe without chasing down interest. If debt consolidation is a viable option, it is likely you will discover this as you attend required credit counseling before filing a Chapter 13 bankruptcy.

Will I lose my assets or investments when I file Chapter 13?

If protecting assets and investments, or even maintaining a more privileged lifestyle is one of the reasons why many people choose to file Chapter 13. Income guidelines and allowed assets are much higher than they are with Chapter 7, so chances are you’ll be able to hold onto what’s most important to you and your family.

Is Chapter 13 mainly for those who don’t meet Chapter 7 Guidelines?

While it is common for the Chapter 13 option to be presented to those who don’t pass the “means test” required for Chapter 7, there are many cases when even those with lower or moderate incomes may prefer Chapter 13 over Chapter 7. Under Chapter 7, there are several instances where debts cannot be included as part of the bankruptcy, including tax debts and student loans. For those whose have a good portion of their debts in these areas, having the ability to include these types of debts in the repayment plan can be a relief.

Also, there are many people who feel better participating in a Chapter 13 plan because they are paying their bills. Even though it might not look better to creditors, it is enough for many people to regroup and be relieved of high interest charges. During a Chapter 13 payment plans you pay only one bill to your trustee, and do not have to directly deal with creditors.

Getting New Credit

When you file a Chapter 13 bankruptcy, your income levels are assessed to determine how much you can affordably pay towards your debts. For this reason, it is rare that new debt can be incurred during the 3-5 year repayment period. Any new credit you might get not only needs to be approved by the potential creditor, but also by the trustee that is handling your bankruptcy case. Getting new credit is rare and inadvisable during a Chapter 13 bankruptcy, as new debt is not eligible to be included as part of the bankruptcy.