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Understanding Chapter 7 and Chapter 13 Bankruptcy and When to File

filing for bankruptcy


By:Mike Cibik


Understanding Chapter 7 and Chapter 13 Bankruptcy and When to File

Jennifer from Atlanta was a proud homeowner in 2008 at the age of 35. She had to spend her last dollar on buying a house and managed to keep afloat with the help of credit cards and paltry savings.


Unfortunately, she was diagnosed with a rare health condition the next year and had to undergo treatment that lasted for several months, along with surgery. She did not have the means to live from day to day, and that’s when she decided to file for bankruptcy.


The good thing about declaring yourself to be bankrupt is it certainly gives you an opportunity to make a fresh start. But the process isn’t as easy as it sounds. The entire process has become quite complicated over the years and can severely bring you down. Make it a point to educate yourself about the bankruptcy basics before you file. It would also help to discuss your case with a qualified bankruptcy attorney.


Filing for bankruptcy should be a last resort and comes with a few conditions along with the advantages. Use it as a tool only if you have no other option for paying off your debts. Renegotiating your loan terms may prove to be effective as will talking things over with your creditors. Contacting a quality ‘debt management agency’ can also ease your troubles. Here is a list of things you should keep in mind before you file for bankruptcy:


Evaluate your debts

You may hope to start with a clean slate, but there are a few debts that will not be stricken off of your records. Check out the ones that you cannot be discharged from. Filing for bankruptcy is certainly not the best option if most of your debts fall under the non-erasable category such as alimony, tax debts, student loans, and child support, to name a few. Do not forget to take state law into consideration. Each state has its own provisions and rules. Make sure to consult a bankruptcy lawyer in your state for the debts that you’re eligible to erase.


Protected Assets

The bankruptcy process will give the creditors the authority of selling your valuables to get their dues.  Fortunately, there are a few assets that you get to protect here. It depends on the type of bankruptcy filed. The assets which are exempt when you file a Chapter 13 Bankruptcy will depend on what state you are a domicile of. You can, however, decrease your liabilities by selling off a few valuables in order to repay your creditors.



Cosigning a loan will not allow you to go scot-free when the other party declares himself to be bankrupt. You will still be held responsible for repaying the loan according to the terms and conditions agreed upon.


Kinds of Bankruptcies

Chapter 7 Bankruptcy comes under the purview of the Federal Court in the United States of America. The Bankruptcy code that comes into force when you file will be termed as a specific chapter. You can file as an individual for Chapter 7 Bankruptcy today. The same chapter applies to businesses as well. Your property is likely to be seized and your creditors paid off in the process. The secure debts will not be touched though. You can also choose to allow repossession of your home/property or opt for paying your creditors an amount equal to the present value of your property.


Not everyone can qualify for Chapter 7, however. You do have to be included in a certain lower income bracket to file for this type of bankruptcy.


Chapter 13: Chapter 13, on the other hand, is believed to be a ‘wage earner’ bankruptcy. Filing for this particular chapter will enable you to propose a repayment plan to your creditors wherein you can pay off the debt bit by bit over a long period of 3-5 years. However, you need to have a trustworthy source of income after filing for bankruptcy. Your secured debts must be limited to $1,149,525 and the unsecured ones should not be more than $383,175.


It is vital to examine the impact that bankruptcy will have on your credit score afterward. Remember that a Chapter 13 bankruptcy is likely to be included in your credit report for as long as 7 years. It would be wise, therefore, to educate yourself about bankruptcy and its consequences before you decide to declare yourself to be bankrupt.


Contact Cibik & Cataldo at 215-735-1060 if you are thinking about filing for bankruptcy and have questions.


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