Chapter 7 vs. Chapter 13 Bankruptcy in Nevada

Bankruptcy is a method to eliminate or at least reduce debt when bills pile up beyond one’s ability to repay them.   When all other potential courses of action to get back on track is exhausted, bankruptcy is viewed to be as the last resort.   Bankruptcies are divided into types, also called Chapters.

Chapter 7 and Chapter 13 bankruptcy protection are two legal options for debt relief  in the State of Nevada.  Understanding deeper the differences between Chapter 7 and Chapter 13 will be a good start on which option would best work according to your financial situation.  To put it simply, the differences between Chapter 7 and Chapter 13 are:

• what happens to your property;
• eligibility;
• benefits; and
• drawbacks.

When Should You Consider Filing for Bankruptcy?

You should consider filing for bankruptcy under the following conditions:

• you are facing lawsuits from creditors;
• your monthly consumer debt payments exceed fifty per cent of your monthly take-home pay; and/or
• you see no way to pay off your debt within five years; and/or

Chapter 13

Chapter 13 bankruptcy works best if you own property (personal residences; material possessions, including vehicles; insurance policies or proceeds; and/or pensions) or a business that is not covered by exemptions, as this type gives you the chance to keep them if you successfully complete a court-mandated repayment plan that lasts between three and five years.  

An exemption is the cash amount of maximum protection for your home, automobile, personal property and other valuables. In Chapter 7 bankruptcy, you will lose everything if your exemption total is exceeded by your property.

If your house is in foreclosure, you can keep it if you continue paying your mortgage payments and comply to your Chapter 13 payment plan.

Chapter 13 is also known as the reorganization bankruptcy as this type will help you create a repayment plan.  However, coming up with a repayment plan might be difficult for most people.  This will entail making regular payments to the bankruptcy court and remaining under the court’s control for a period of time.  In Nevada, you can petition for Chapter 13 protection many times without having to wait a year between filings.

As this is a more complicated proceeding, it may take years to complete during your payment plan, thus, legal expenses will be costly.

Chapter 7

Chapter 7 bankruptcy involves selling some or all of your property to pay off your debts. This is often the option if you don’t own a home and have a limited income.  

Once your bankruptcy is discharged, you will owe no money to the courts or creditors.  Any future profits will be yours.  This may be completed in a couple of months, thus, legal cost is less.

With the nature of this bankruptcy type, it is also called liquidation bankruptcy.

When is Chapter 13 better?

Chapter 13 is a better option if you:

• have multiple mortgages;
• have debts that cannot be discharged;
• are behind on your mortgage and want to catch up;
• owe money to your ex-spouse from a property settlement;
• want to keep property that is not protected by an exemption; or
• have a car loan with a high interest rate or negative equity from a trade-in.

When is Chapter 7 better?

Chapter 7 is a better option if you:

• only have unsecured debt, such as credit card debt, medical bills, repossession balances, personal loans, and so on;
• do not have a steady source of income, or do not have enough to pay your living expenses such as housing and food;
• cannot afford to engage a bankruptcy lawyer to represent you in court;
• do not owe any non-dischargeable debts, such as alimony and child support, and you are current on your payments; or
• are unable to commit to a repayment plan for at least the next three years.

But, which is better:  Chapter 7 or Chapter 13?

Your financial situation and goals will dictate the form of bankruptcy that suits you.

What works best is a consultation with a bankruptcy attorney that can help you choose whether you should file for Chapter 7 or Chapter 13 bankruptcy. You want to make sure that bankruptcy will solve your debt difficulties and liabilities, and make a fresh start.

Most people opt for Chapter 7 because it is faster and less expensive in fees compared with Chapter 13.

How Long Does a Bankruptcy Take?

If no objections are filed after your meeting with creditors, the discharge can be entered in less than six months for Chapter 7 bankruptcy.

Chapter 13 bankruptcy discharge, on the other hand, takes three to five years depending on the repayment plan.  It may also involve a number of hearings in court.

How to Qualify for Chapter 7 or Chapter 13?

You will most likely qualify for Chapter 7 bankruptcy if:

• you pass the means test.  This test looks at your income, expenses and family size;
• you did not have a previous Chapter 7 discharge in the past eight years or a Chapter 13 in the past six years; and/or
• you did not file a bankruptcy petition for either Chapter 7 or 13 in the previous 180 days that was dismissed for certain reasons (failing to appear in court or comply with court orders).

You will most likely qualify for Chapter 13 bankruptcy if:

• you have enough disposable income to support a court-approved repayment plan; and/or
• you cannot possess secured debts worth more than $1,149,125 or unsecured debts worth more than $383,175.

Which Chapter Bankruptcy Works For You?

Both types of bankruptcy protection have advantages and disadvantages. We can assist you in evaluating and identifying the merits of each  for your current debt situation as bankruptcy attorneys in Las Vegas.

Freedom Law Firm is here to help.

Bankruptcy is often the last but necessary resort. It is a delicate and complex proceeding, and you want someone with plenty of experience to consult you and guide you through the process and help you determine the scope of the discharge.

In many cases, unless a party in interest files a complaint objecting to the discharge, the bankruptcy court may issue a discharge order relatively early in the case – generally, 60 to 90 days after the date first set for the meeting of creditors.

If you would like to find out whether bankruptcy is the right option for you, please request a call-back by submitting a short online form. All initial consultations are free and confidential.