Understanding the Differences Between Chapter 7 & Chapter 13

Life's financial curveballs can strike unexpectedly and sideline you from meeting your financial obligations, paying your bills, or settling debts and expenses. For individuals and business owners facing financial adversity, Chapter 7 and Chapter 13 are among the possible bankruptcy options that can help you get debt relief or achieve the financial stability you deserve. A knowledgeable Georgia bankruptcy attorney can help review your unique situation to determine the right bankruptcy chapter that best suits your needs.

At Pytte Law, I have dedicated my career to providing outstanding legal services and knowledgeable guidance to clients in bankruptcy-related matters. I am available to discuss your unique financial condition and explore your different debt relief options. My firm proudly serves clients across Savannah, Hinesville, Richmond Hill, Statesboro, Ludowici, Evans County, and Chatham County, Georgia.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy (or liquidation bankruptcy) is to help individuals and business owners facing financial hardship eliminate most of their general unsecured debts and achieve debt relief. When you file for Chapter 7, the court will appoint a trustee to oversee your bankruptcy case. The trustee will collect and sell all your non-exempt assets.

Non-exempt assets include property and assets sold in a Chapter 7 case, such as second cars, second homes, vacation homes, bank accounts, family heirlooms, cash, bonds, stocks, and other investments. The proceeds from the sale repay some or all your creditors. In addition, you will still retain your exempt assets, including primary home, clothing, car, household appliances, and furniture pieces.

Who Qualifies for Chapter 7?

To be eligible for Chapter 7 bankruptcy in Georgia, you must pass the bankruptcy means test and attend credit counseling courses. The bankruptcy means test will evaluate your financial history, deduct expenses and payments, and determine your amount of disposable income.

Additionally, you automatically pass the means test if your income is lower than the median income for your household size in Georgia, and you will be allowed to file for Chapter 7 bankruptcy. The median incomes for different household sizes in Georgia are listed below:

  • One-person household — $53,105
  • Two-member household — $68,295
  • Three-member household — $76,391
  • Four-member household — $92,286

*Add $9,000 for each household above four members.

The figures listed above are for cases filed on or after May 15, 2021, and the files are updated regularly.

When is Chapter 7 a Good Option?

Chapter 7 may be a good option if:

  • You own small assets
  • Your income is lower than the state's median for your household size
  • The majority of your debts include credit card balances, medical expenses, and personal loans that can be eliminated or discharged

Chapter 13 Bankruptcy

Chapter 13 bankruptcy (or wage earner's bankruptcy) is available to consumers who earn a regular income but are overburdened with debts. Through Chapter 13, you can pay off some or all of your debts using your future earnings over an extended period.

Chapter 13 requires the debtor to propose a repayment plan — structured over 3 to 5 years — to their creditors. Upon filing, you will be allowed to keep your assets and property, including your vehicles and home.

Who Qualifies for Chapter 13?

To qualify for Chapter 13 bankruptcy in Georgia,

  • You must have a regular source of income
  • Your income must be above the state's median for your household size

When is Chapter 13 a Good Option?

Chapter 13 may be a good option if:

  • You earn a regular income
  • You own several assets, and you don't want to lose any
  • Most of your debts are nondischargeable tax, student loans, or domestic support debts

An experienced attorney can review your financial situation and determine which chapter of bankruptcy is the right option for you to achieve debt relief.

Differences Between Chapter 7 & Chapter 13

If you are considering filing for bankruptcy in Georgia, here are some differences between Chapter 7 and Chapter 13:

Who Can File

Filing for Chapter 7 requires you to pass the bankruptcy means test. Conversely, Chapter 13 is available to individuals who earn a regular income but are overwhelmed with debts.

Is a Payment Plan Required?

No repayment plan is necessary for a Chapter 7 case. In contrast, Chapter 13 requires proposing a debt repayment plan to settle your creditors.

What Happens to Your Assets?

In a Chapter 7 case, the trustee will gather and sell your non-exempt assets. Conversely, non-exempt assets are not sold in a Chapter 13 case.

What Happens to Your Debts?

Filing for Chapter 7 will eliminate most of your general unsecured debts. In contrast, filing for Chapter 13 will require you to pay off some or all of your creditors.

Effect on Your Credit Score

Unfortunately, filing for Chapter 7 or Chapter 13 will both harm your credit score. Thankfully, you can improve your credit score gradually and recover financially over time by maintaining good financial habits.

How a Skilled Attorney Can Help

Filing for bankruptcy can help you achieve debt relief and should not be a sign of defeat. According to statistics from the American Bankruptcy Institute, there were 27,953 total bankruptcy filings in Georgia in 2020, including 14,065 Chapter 7 filings and 13,702 Chapter 13 filings. These consumers were not alone, and you shouldn’t be either. An experienced bankruptcy attorney can explore your available bankruptcy options and determine your eligibility.

Contact me — John E. Pytte | Your Georgia Debt Relief Specialist — today to schedule a simple consultation with a knowledgeable bankruptcy attorney. At Pytte Law, I have the experience, resources, and diligence to assist and guide clients through the complexities of bankruptcy proceedings. My firm is proud to serve clients across Savannah, Hinesville, Richmond Hill, Statesboro, Ludowici, Evans County, and Chatham County, Georgia.


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