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Understanding the difference between Chapter 13 and Chapter 7

If you've been living paycheck to paycheck for years, debt can accumulate quickly. It's far too easy for the average Pennsylvanian to reach a point where their level of debt is simply unsustainable. A single event, like a car accident or a medical issue, can make maintaining your payments impossible. Even those who have worked for years in the same field may find that cost of living increases simply aren't enough to cover their ever-expanding debt.

If you combine that personal debt, like credit card debt, with medical debt or other expenses, bankruptcy may soon be the best option for your future.

If you are considering bankruptcy in Pennsylvania because of your debt, you may be wondering whether Chapter 13 or Chapter 7 is the better option for your situation. Consulting with an experienced bankruptcy attorney is one of the easiest ways to determine what is right for you. Knowing the basics of Chapter 7 and Chapter 13 before your meeting may help you plan better.

What is Chapter 7?

When people think of bankruptcy, they often think of Chapter 7 bankruptcy. In Chapter 7, those who are struggling with the combination of high debt and lower than average income are able to have many of their debts discharged. That means that they are forgiven, with no future repayment required. In order to qualify for Chapter 7, those filing must earn less than the state median income. In Pennsylvania, in 2015, the most recent completed year, the median income was $49,341 for a single person. For couples that amount increases to $58,187. Those who qualify may qualify to file Chapter 7.

You may be required to liquidate some of your assets during the proceedings, depending on how much you own. Certain items may be exempt. An attorney can help to ensure that you maximize your exemptions during Chapter 7 proceedings. When the discharge is granted, those who file Chapter 7 are no longer under obligation to repay any of the debts discharged.

What is Chapter 13?

Unlike Chapter 7 bankruptcy, those who file Chapter 13 enter into a repayment program where they work to pay down their debts over a period of three to five years. After that time, any remaining debt may be discharged.

There are other requirements for both Chapter 7 and Chapter 13, such as debt counseling. Speaking with an experienced bankruptcy attorney is the best way to determine which form of bankruptcy will offer the most relief for your situation.

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