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Chapter 7 and Chapter 13 provide different bankruptcy remedies

One important issue that is always discussed in the first meeting with a consumer bankruptcy attorney in Washington is whether to file Chapter 7 or Chapter 13. Several other critical issues must be evaluated at the same time, including whether the individual or married couple are qualified under the means test to file a Chapter 7. Generally, one who makes too much money to file a Chapter 7 bankruptcy will still likely be qualified to file a Chapter 13.

Chapter 7 is the preferable route for people with a large load of unsecured debt, such as credit cards, medical bills and other unattached extensions of credit. Chapter 7 is dubbed the liquidation chapter because the nonexempt assets of the individual will be sold, and the funds distributed to creditors. However, with appropriate pre-bankruptcy planning and the proper assignment of one's assets to the proper exemption categories, most Chapter 7 consumer filings do not involve the seizure of assets.

Chapter 13 is a payment plan that extends for 36 to 60 months. It is a sometimes-miraculous way for consumers to hold onto their house despite the mortgage being in a default status. The consumers present a Chapter 13 plan to the court for approval and after successfully paying all monthly payments under the plan, the arrears on the home mortgage will be paid off. After bankruptcy, the homeowner simply continues to make the regular payments until the loan is paid in full.

Despite not being ideal for the person who has primarily unsecured consumer debt, Chapter 13 is a more versatile remedy for many individuals with other financial complications. For example, where a homeowner in Washington state is burdened with more than a first mortgage and is attempting to keep up with a second mortgage also, an experienced consumer bankruptcy attorney may advise that it is possible to eliminate the second mortgage by having it declared unsecured. This involves calculations that an experienced bankruptcy attorney will conduct on the client's behalf.  

Source:, "Chapter 7 vs Chapter 13 Bankruptcy", Roshan Waingankar, May 21, 2018

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