Bankruptcy Lawyers
South Carolina


Chapter 7 vs. Chapter 13 Bankruptcy – Differences & Advantages

Close up of bankruptcy petition with calculator and writing hand

A bankruptcy attorney in South Carolina explains what you need to know

Filing for bankruptcy can be the lifeline many people need to make a fresh start. That’s why more than a million people (sometimes more) and businesses decide to declare bankruptcy every year around the country. But deciding whether to file for bankruptcy and which form of bankruptcy to choose from can be a difficult decision.

Many individuals decide to file one of the two most common forms of bankruptcy – Chapter 7 or Chapter 13. But which one is the right one for you? What are the advantages and disadvantages of Chapter 7 bankruptcy versus Chapter 13 bankruptcy? Below, you can learn more about this important issue, courtesy of an experienced bankruptcy lawyer who represents clients throughout South Carolina and thoroughly understands the bankruptcy process.

What is Chapter 7 Bankruptcy?

The most common form of bankruptcy, Chapter 7 bankruptcy is often referred to as liquidation bankruptcy. This is because individuals who file for this type of bankruptcy can liquidate some of their assets, meaning certain property is sold off to pay back creditors.

This form of bankruptcy allows individual consumers to eliminate most of their debts, provided that a U.S. Bankruptcy Court issues a “Discharge of Debt.” Most people who file Chapter 7 bankruptcy in South Carolina keep all of their assets (including their home and car) and gain protection from creditors, who cannot seize or repossess them.

Advantages of Chapter 7 Bankruptcy

There are many reasons why individuals and certain businesses file for this form of bankruptcy. Some of the advantages include:

  • Allows individuals who qualify for Chapter 7 bankruptcy to permanently wipe out certain unsecured debt, particularly medical debt (unpaid hospital bills) and credit card debt.
  • Allows a sole proprietor business owner who qualifies to eliminate many business debts and personal debts in a single bankruptcy case.
  • Often allows individuals to keep certain assets, including their car and home.
  • Creditors cannot harass individuals, including sending harassing collection notices or making harassing phone calls.

Disadvantages of Chapter 7 Bankruptcy

While Chapter 7 bankruptcy might be the right choice for some people, there are many reasons why individuals or businesses decide to not file for this type of bankruptcy. Reasons why include:

  • Individual does not qualify for Chapter 7 bankruptcy due to income requirements. An individual’s annual income must meet certain bankruptcy means test requirements and fall below a specific income level, which varies from state to state and is often adjusted on a regular basis.
  • Certain debt often does not qualify for Chapter 7 bankruptcy, meaning the individual must still pay back such debts. This often includes student loan debt, unpaid taxes, and unpaid child support payments.
  • Filing for Chapter 7 bankruptcy as a business often does not wipe out most debts for many businesses.
  • Filling for this form of bankruptcy will likely have a negative impact on your credit score.
  • Individuals who qualify for Chapter 7 bankruptcy often lose many or all of their credit cards.

What is Chapter 13 Bankruptcy?

Often referred to as “wage earner” bankruptcy or reorganization bankruptcy, Chapter 13 bankruptcy grants individuals and businesses more time to pay back their debts, provided they meet strict income requirements. Qualified individuals and businesses also often pay a significantly lower interest rate and perhaps even at zero percent interest.

In many cases, individuals who qualify for Chapter 13 bankruptcy have three to five years to pay their creditors. Individuals and businesses that qualify for Chapter 13 bankruptcy can also often keep all of their assets.

Advantages of Chapter 13 Bankruptcy

As explained above, there are many advantages to this form of bankruptcy. Such advantages include:

  • Often allows businesses and individuals who qualify to keep all or most of their assets.
  • Gives individuals and businesses that qualify more time to pay back their debts.
  • Often significantly lowers the interest rate for debt owed by individuals and businesses.
  • Creditors cannot harass individuals and businesses that qualify and make their debt payments on time.

Disadvantages of Chapter 13 Bankruptcy

Some individuals and businesses avoid filing for this type of bankruptcy for several reasons, including:

  • Strict income requirements. In particular, many people and businesses do not meet eligible income requirements (often, they don’t make enough money) to qualify for reorganization bankruptcy.
  • Some payment must be made to your creditors. It can be as low as 1% and the remaining outstanding debts are dismissed upon discharge.
  • Filing for Chapter 13 bankruptcy will often stay on your credit report for up to 10 years.

How a bankruptcy attorney can help

Deciding whether to file for bankruptcy can be a difficult decision. Knowing whether to do so – and which form of bankruptcy is right for you – might not be clear. And if you decide to pursue a particular type of bankruptcy, the process can often be very detailed, confusing, and time-consuming.

At Benjamin R. Matthews and Associates, LLC in South Carolina, we thoroughly understand how the bankruptcy process works. That’s because we have years of experience working with individuals and businesses considering filing for bankruptcy. As your attorney, we can guide you through the process and help you prepare for any obstacles you might encounter. From filling out forms to appearing in bankruptcy court, we can be there with you every step of the way.

Discover how our law firm can help with your bankruptcy filing, application, or appeal. Contact us today to schedule an appointment with an experienced South Carolina bankruptcy attorney. We have two offices conveniently located in Columbia and Rock Hill, and we handle cases statewide.

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2010 Gadsden Street
Columbia, SC 29201

Phone (803) 799-1700
Fax (803) 728-6718

331 E. Main St, Suite 257
Rock Hill, SC 29730

Phone (803) 909-9377
Fax (803) 728-6718