Once you have decided that bankruptcy is the appropriate option to alleviate overwhelming debt or financial difficulty, it is necessary to determine whether Chapter 7 or Chapter 13 bankruptcy is the right for you. Both processes provide recourse for an individual in Council Bluffs, IA who is unable to overcome a mound of financial commitments and bills, but there are key differences that will dictate which form of bankruptcy you pursue.
Comparing Chapter 7 and Chapter 13 Bankruptcy
Both paths through bankruptcy are provided by federal law, therefore the processes are substantially the same in Iowa as throughout other states. The most basic difference between these two processes is that under Chapter 7 bankruptcy your debt is forgiven and you do not have to repay any debt, while Chapter 13 bankruptcy provides a court-approved path for reorganizing your debt and you will have to repay at least a portion of the debt. Many debtors take this to mean Chapter 7 is an easier path to removing debt and the weight of debt obligations, but that is not necessarily true.
Under Chapter 7 bankruptcy the debtor’s unsecured assets will be sold to repay the debt. Unsecured assets are those possessions and property that are not essential for everyday health and wellbeing. Iowa’s exemption laws protect property such as your home, a vehicle with less than $7,000 in equity, farm equipment and your household goods and clothing. If you have questions about what property is protected in Iowa, it is important to talk with a knowledgeable lawyer.
On the other hand, Chapter 13 bankruptcy sets up a payment plan for repaying your debts over a three to five year period. Any debt you can’t repay in this three to five year period is discharged. While a payment plan can seem to have similar stresses to working through debt on your own, it can alleviate collection calls and overwhelming, impossible to pay debt.
When Chapter 13 Bankruptcy Makes Sense
Under Chapter 13 debt, you are not required to liquidate your unsecured and non-exempt property. Debtors under Chapter 13 do not have to give up property they want to keep. This makes is more likely that a debtor will cure the default on a mortgage loan, stop foreclosure, and begin to build good credit sooner.
As well, Chapter 13 bankruptcy only remains on your credit score for seven years, compared to the 10 years that Chapter 7 affects a credit score. When it comes to establishing healthy financial practices, Chapter 13 bankruptcy, with its payment plan and structure, can help build habits better than Chapter 7 bankruptcy.
Lastly, certain individuals may not qualify for Chapter 7 bankruptcy because they do not meet the mean test or already had debt discharged under Chapter 7 in the past eight years. In these instances, Chapter 13 bankruptcy may not only be the preferable option, but the only one.
When to Choose Chapter 7 Bankruptcy?
With a number of benefits weighing in favor of Chapter 13 bankruptcy, why do more people in Iowa choose to file for Chapter 7 bankruptcy?
Chapter 7 operates like a blank slate. It allows people to start over, even if that means liquidating property along with discharging substantial debts. That can be a relief. As well, the process of filing Chapter 7 bankruptcy is substantially shorter than under Chapter 13. It only takes three to six months for a Chapter 7 bankruptcy to be completed, while those who file under Chapter 13 are on a payment plan for three to five years.
Speak with an Experienced Bankruptcy Attorney
If you have been considering bankruptcy as a solution to significant financial difficulty, you can speak with a bankruptcy lawyer to develop the best path through bankruptcy. At Telpner Peterson Law Firm you can speak with our bankruptcy lawyers, Charles L. Smith or Nicole Smith to ensure you meet all requirements to file for Chapter 7 or Chapter 13 bankruptcy. To schedule an initial consultation, call our office today at 712-309-3738.