How it works
The vast majority of unsecured debts (such as credit cards, medical bills and personal loans) are forgiven. You must thoroughly document your finances and eligibility. You may give up some assets but likely won't have to.
You get court approval of a plan to repay both unsecured and secured debts (such as mortgage and car loans) in part or whole. You'll pay over three to five years and will retain your assets.
• Must have sufficient income.
• Unsecured debt cannot exceed $394,725. Secured debt cannot exceed $1,184,200.
• Must be current on tax filings.
• Cannot have filed for Chapter 13 in the past two years or Chapter 7 in the past four years.
Does it apply to every type of unsecured debt?
No, you must still pay child support and most debts you owe the government, such as most taxes. The court is highly unlikely to forgive student loan debt.
You'll have to repay some or all of your secured and unsecured debts over three to five years.
Can Your House Be Taken?
If the equity in your house exceeds exemption levels for your state, it may be sold. Otherwise you keep it as long as you can afford it.
Not if you stay current on mortgage payments.
Can Your Vehicle Be Taken?
If the equity in your vehicle exceeds exemption levels for your state, it may be sold. Otherwise you keep it as long as you can afford it.
Not if you stay current on the payment plan.
How long does it stay on your credit reports?
Up to 10 Years
Up to 10 years, likely closer to seven.
Is one better than the other? (It depends!)
CHAPTER 7 IS USUALLY BETTER IF:
Your problem debts are ones that can be discharged, or forgiven, by Chapter 7, such as medical bills or credit card debt.
You don’t have many assets. Many Chapter 7 filers have modest cars and average income. If the value of your possessions falls within the exemption limits, you don’t have to worry about your assets being seized.
You don’t think you’d be able to pay off your debts over three to five years.
You currently have no income
CHAPTER 13 IS USUALLY BETTER IF:
You make too much to qualify for chapter 7
You want to keep certain valuable assets
You are behind on your mortgage or car payments and want to make them up over time.
Most of your debts are student loans, child support or other debts that either can’t or are highly unlikely to be discharged under Chapter 7.
You owe a lot of taxes
You have nonexempt assets that you want to keep, such as a nicer car or valuable jewelry.
You have a co-signer on an indebted account that you can not afford to pay. Chapter 13 allows you to protect co-signers and pay the debt in the payment plan.