Chapter 7 vs. Chapter 13 Bankruptcy in Phoenix
Talk to a Phoenix bankruptcy lawyer at Hilltop Law firm to find out if you should file chapter 7 or chapter 13 bankruptcy. Contact us at (602) 466-9631.
Finding the Best Option for You
If you are faced with overwhelming debt, bankruptcy may be the right choice. Eligible individuals may file for either Chapter 7 or Chapter 13 bankruptcy. Our experienced Phoenix bankruptcy attorney can provide sound legal guidance on every aspect of bankruptcy and help you determine whether Chapter 7 or Chapter 13 is the best choice for you.
Contact Hilltop Law Firm at (602) 466-9631 to set up a free 30-minute consultation with no cost or obligation.
Cy Hainey is an absolute pleasure to work with...He told me the difference between Chapter 7 & 13 plus the requirements for each option...”
- A. F.
What Is Chapter 7 Bankruptcy?
Chapter 7 is a type of bankruptcy that does not require a plan of repayment. When you file for Chapter 7, an automatic stay stops most collection actions against you. The bankruptcy trustee gathers and sells your non-exempt assets and uses the proceeds to pay creditors. You are allowed to keep certain exempt personal properties, including household items, clothing, books, medical health equipment, the tools of your trade, your home, and a vehicle valued at up to a certain amount. Unsecured debts, such as credit card balances and medical bills, are discharged in Chapter 7.
What Are the Eligibility Requirements for Chapter 7?
To be eligible to file for Chapter 7, your disposable income must be under a certain amount. If your current monthly income exceeds the state median, a “means test” must be applied. The purpose is to determine whether granting you relief would be an abuse of Chapter 7. The means test is a calculation that compares your household income to the median for your state and accounts for your expenses. If the test reveals that you do not have enough disposable income to pay at least 25% of your unsecured nonpriority debts over a five-year period, you are eligible for Chapter 7.
What Are the Pros and Cons of Chapter 7?
- The main advantage of filing for Chapter 7 is that it provides relief from unsecured debts and gives you a fresh start. Most unsecured debt can be discharged. It automatically stops collection actions, including repossession, wage garnishment, lawsuits, and harassing phone calls. It allows you to keep certain exempt property considered necessary for life.
- The main disadvantage of Chapter 7 is that it is reflected on your credit report for up to 10 years. It will not discharge certain debts, such as child support, alimony, tax liens, and student loans. In addition, you will lose any property that is not exempt under the Bankruptcy Code.
What Is Chapter 13 Bankruptcy and Who Is Eligible?
Chapter 13 is also known as the wage earner’s plan. It allows individuals with regular income to create a plan for full or partial repayment to creditors in installments over a three- to five-year period. Once the plan is complete, the remaining debt is discharged.
Individuals with too much income to qualify for Chapter 7 can file for Chapter 13. You are eligible to file if the combined total of your secured and unsecured debts is less than $2,750,000 as of the date of filing.
Chapter 13 gives you more time to pay off your debts and flexibility on the terms of payment. Once you complete your repayment plan, you are not obligated to pay individual creditors in full, and you get to keep the property on which you are making payments. The main disadvantages of Chapter 13 are:
- It can take up to five years to repay your debts.
- It stays on your credit report for up to 10 years.
- You will lose your credit cards.
- You may not be able to get a mortgage loan.
Comparing Chapter 7 vs Chapter 13 Bankruptcy in Arizona
If you’re struggling with overwhelming debt in Arizona, bankruptcy may offer the financial relief you need. Chapter 7 and Chapter 13 work in very different ways.
Here’s how Chapter 7 and Chapter 13 compare, focusing on process duration, impact on assets, and the types of debt they address.
Process Duration
One of the biggest differences between Chapter 7 and Chapter 13 is how long the process takes.
- Chapter 7 bankruptcy is typically much faster. From filing to discharge, the entire process usually takes between 3 to 6 months. This is ideal for people seeking a quicker resolution to their financial burdens.
- Chapter 13 involves a repayment plan that spans 3 to 5 years. During this time, you make regular payments to a trustee, who then distributes the funds to your creditors. Chapter 13 takes longer but offers more flexibility if you’re trying to catch up on certain debts like mortgage arrears or tax obligations.
Impact on Assets
Another key difference lies in how each chapter treats your assets.
- Chapter 7. Arizona law does offer exemptions to protect necessities under Chapter 7, like your home (up to $150,000 in equity) and a vehicle (up to $6,000), but if you have valuable property that exceeds those limits, it could be at risk.
- Chapter 13 allows you to keep all your property, including non-exempt assets. Instead of selling assets, you repay a portion of your debts through a structured plan. This makes Chapter 13 a better option for individuals who have significant assets they want to protect.
Types of Debt
The kind of debt you’re dealing with also plays a role in determining which bankruptcy chapter is best.
- Chapter 7 focuses on eliminating unsecured debts, like credit cards, medical bills, and personal loans. It does not help with past-due mortgage payments or car loans unless you’re willing to give up the property tied to those debts.
- Chapter 13 can handle both unsecured and secured debts, making it more versatile. It’s especially useful if you’re behind on your mortgage or car loan and want to keep those assets while catching up on missed payments over time.
Choosing the Right Arizona Bankruptcy Option
No matter your situation, Hilltop Law Firm provides honest, responsive legal advice to help you make informed decisions. With the right guidance, you don’t have to navigate debt alone. Let us help you take the first step toward financial relief.
Arizona Bankruptcy FAQs
What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 is a liquidation bankruptcy that quickly eliminates most unsecured debts, such as credit cards and medical bills. Chapter 13 is a reorganization bankruptcy that allows you to repay some or all of your debts over three to five years through a court-approved plan.
How Do I Know Which Chapter Is Right for Me?
Choosing between Chapter 7 and Chapter 13 depends on your income, types of debt, and whether you want to protect certain assets. At Hilltop Law Firm in Phoenix, we’ll evaluate your full financial picture and guide you toward the option that fits best.
Will I Lose My House or Car if I File Chapter 7?
Not necessarily. Arizona’s exemption laws protect a portion of your home and vehicle equity. If you’re current on payments and your equity falls within exemption limits, you may be able to keep your home and car.
Can I Stop Foreclosure or Repossession with Bankruptcy?
Yes. Filing for bankruptcy triggers an automatic stay that stops foreclosure and repossession. Chapter 13 can help you catch up on past-due payments over time and keep your property.
How Long Does Bankruptcy Stay on My Credit Report?
Chapter 7 remains for up to 10 years, while Chapter 13 stays for up to 7 years. However, many people begin rebuilding credit soon after filing.
Do Both Types of Bankruptcy Stop Creditor Harassment?
Yes. Once you file, an automatic stay goes into effect immediately, stopping collection calls, lawsuits, garnishments, and other creditor actions.
Can Bankruptcy Help with Medical Bills and Credit Cards?
Absolutely. These are considered unsecured debts and are typically dischargeable under both Chapter 7 and Chapter 13 bankruptcy.
What Debts Cannot Be Discharged?
Certain debts like child support, alimony, most student loans, recent tax obligations, and criminal fines cannot be eliminated in bankruptcy.
Do I Need a Phoenix Attorney to File for Bankruptcy?
While it’s possible to file on your own, bankruptcy law is complex. Mistakes can lead to delays, dismissals, or loss of property. An experienced Phoenix bankruptcy lawyer at Hilltop Law Firm can ensure your case is handled properly from start to finish.
Additional Information
- How Does Chapter 13 Bankruptcy Affect Your Credit in Phoenix?
- What a Chapter 13 Bankruptcy Repayment Plan Could Look Like
- What are the Steps to Filing Chapter 7 Bankruptcy in Arizona?
- What Is the Chapter 7 “Means Test,” and How Does It Work?