Should You Choose Chapter 7 or Chapter 13? A Guide for New Yorkers

Should You Choose Chapter 7 or Chapter 13? A Guide for New Yorkers

Are you a New Yorker who feels overwhelmed by debt? Have you tried to make payment arrangements with your creditors but still cannot catch up? If so, you are not alone. Many people across New York City face tough financial challenges, from unexpected medical bills to job loss.

At Poltielov & Habib, LLP, our team of New York bankruptcy lawyers knows how stressful these situations can be. We also know that filing for bankruptcy is not an easy choice. You might wonder whether Chapter 7 or Chapter 13 is right for you or if you should even file at all. Thankfully, we can help. Call us today to schedule a consultation. In the meantime, read on to learn more about Chapter 7 vs Chapter 13 bankruptcy.

What Are Chapter 7 and Chapter 13 Bankruptcies?

In simple terms, Chapter 7 and Chapter 13 are two types of personal bankruptcy. Both can give you relief from creditor harassment, wage garnishments, and unmanageable debt. Yet, they work in different ways.

Chapter 7 Bankruptcy

Chapter 7 is often called a “liquidation” bankruptcy. In this process, some of your assets may be sold (liquidated) to repay part of your debts. In many cases, people who file for Chapter 7 keep most, if not all, of their belongings because of certain exemptions. Any qualifying debts that remain after liquidation are usually wiped out, which is known as a “discharge.”

Chapter 13 Bankruptcy

Chapter 13 is sometimes called a “reorganization” bankruptcy. Instead of selling your assets, you propose a plan to repay a portion of your debts over three to five years. During this repayment period, you usually make one monthly payment to a trustee, who then pays your creditors. If you successfully follow the plan, any remaining eligible debts are discharged at the end.

Why Do Both Chapters Provide an Automatic Stay?

One of the biggest benefits of filing bankruptcy is the automatic stay. This legal protection stops most collection efforts the moment you file. Calls from debt collectors, letters demanding payment, or even scheduled foreclosure sales must pause.

For Chapter 7, the automatic stay typically lasts until your case is completed or dismissed. For Chapter 13, the stay continues during the entire repayment period, which can be several years. This stay can be especially helpful for protecting your home from foreclosure or stopping wage garnishments.

How Do Chapter 7 and Chapter 13 Affect Your Home?

Home protection is a major concern for many homeowners. If you are behind on mortgage payments, you might be worried about losing your home. Here is where the two bankruptcy chapters differ.

  • Chapter 7: This option can temporarily halt foreclosure through the automatic stay, but if you cannot catch up on missed mortgage payments, your lender may still proceed with foreclosure after the stay ends. Some people do choose Chapter 7 and manage to keep their homes by using available state or federal exemptions, but you must stay current on payments if you want to avoid foreclosure in the long run.
  • Chapter 13: With this type of bankruptcy, you can often include past-due mortgage payments in your repayment plan. You might have up to five years to catch up on missed payments, which can help you keep your home. As long as you follow your plan and make all required payments, you have a better chance of saving your property.

At Poltielov & Habib, our goal is to help you choose the path that offers the best protection for your home. We are New York bankruptcy lawyers who help our clients through both Chapter 7 and Chapter 13.

What About Your Other Debts?

When deciding between Chapter 7 and Chapter 13, it helps to know which debts can be wiped away and which may need to be repaid.

In Chapter 7, debts like credit card bills, medical bills, and personal loans are often discharged if they are unsecured. Secured debts, such as your mortgage or car loan, are treated differently. You may be required to catch up on these payments or give up the property.

In Chapter 13, you usually group your debts into a repayment plan. Some debts, like secured debts, might be paid in full if you want to keep the property. Others may be reduced or discharged at the end of the plan if you meet your obligations.

Which Chapter Takes Longer?

A Chapter 7 case can be completed in as little as three to four months. Once it is done, you get a discharge of qualifying debts and a chance at a fresh start.

A Chapter 13 case requires a three-to-five-year repayment plan. Your bankruptcy is not officially closed until you finish this plan. While this is a longer commitment, it can help people who need extra time to catch up on mortgage payments or restructure other debts.

Who Can Qualify for Chapter 7 or Chapter 13?

Not everyone qualifies for Chapter 7. There is a “means test” that looks at your income, expenses, and family size to see if you have enough income to pay back a portion of your debts. If your income is higher than certain limits, you might have to file Chapter 13 instead.

For Chapter 13, you must have a reliable source of income to fund a repayment plan. There are also debt limits—if your secured and unsecured debts exceed certain amounts, you may not qualify. Because these limits change over time, it is best to speak with a New York bankruptcy lawyer on our team to check the current figures and guidelines.

Will Bankruptcy Ruin Your Credit?

Filing for bankruptcy will show up on your credit report. A Chapter 7 bankruptcy can stay there for up to 10 years, while a Chapter 13 can remain for up to 7 years. However, many people find that their credit score can eventually rebound. You might also receive credit card offers sooner than you expect, but it is wise to use credit carefully after bankruptcy.

Some people worry that bankruptcy means they can never buy a house or get a car loan again. While your ability to borrow money may be limited for a while, bankruptcy often gives people the clean slate they need to rebuild their credit in the long run.

Why Might Chapter 13 Be a Better Fit for Some?

People who own a home with enough equity to exceed the exemptions might feel more comfortable in Chapter 13. That is because you can protect your home from being sold while you pay off your debts over time. Also, if you are behind on a mortgage or car loan, you can use Chapter 13 to catch up gradually.

If your main concern is saving your home and you have a steady income, Chapter 13 often makes sense. If your top priority is erasing unsecured debt quickly and you do not have significant assets, Chapter 7 might be a better match.

What Are Common Misconceptions About Bankruptcy?

Bankruptcy carries many myths. Some people think it means you are irresponsible or that you will lose everything. That is simply not true. At Poltielov & Habib, we have helped many hardworking people who fell behind after a job loss, medical emergency, or other unexpected life event.

One misconception is that bankruptcy never helps with things like back taxes or student loans. While it is true that student loans are usually not discharged, there may be exceptions in cases of extreme hardship. Certain older tax debts might also be cleared, depending on how long ago they were assessed and other specific rules.

Ready to Talk to a New York Bankruptcy Lawyer? Call Us Today

Bankruptcy is never an easy choice, but it can be the key to a fresh start. If you are unsure whether Chapter 7 or Chapter 13 is right for you, let us help. Our team at Poltielov & Habib, LLP understands the struggles of everyday New Yorkers and will work hard to protect your rights.

We invite you to call us today at (718) 520-0085 or contact us online to schedule a confidential consultation. You deserve clear answers and reliable guidance from a New York bankruptcy lawyer you can trust. You do not have to face debt alone. Speak with us and find out if Chapter 7 or Chapter 13 could finally give you the financial relief you need. We look forward to helping you move toward a brighter future.