Washington Bankruptcy Law: Filing for Chapter 13 vs. Chapter 7
In Washington State, individuals facing financial difficulties often consider filing for bankruptcy as a viable solution to alleviate their debt burdens. Bankruptcy laws in Washington provide various chapters under which individuals can file, with Chapter 7 and Chapter 13 being the most common options. Understanding the differences between these two chapters is crucial for making an informed decision.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts, such as credit card bills and personal loans. This process typically takes about three to six months from filing to discharge. In Washington, if your income is below the state’s median income level, you may qualify for Chapter 7 bankruptcy.
One main aspect of Chapter 7 is the liquidation of non-exempt assets. Washington has designated certain exemptions that protect specific assets, such as personal items, a portion of your home equity, and retirement accounts, ensuring you do not lose everything in the process. It’s vital to consult with a bankruptcy attorney to determine what assets you may keep.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also referred to as "reorganization bankruptcy," is designed for individuals who have a reliable income but struggle to manage their debts. Unlike Chapter 7, Chapter 13 allows you to keep your assets while you repay your debts through a structured repayment plan over three to five years.
In Chapter 13, the court approves a payment plan that accommodates your monthly income and necessary living expenses. This can provide a more manageable way to eliminate debts while keeping your home and car. If you are facing foreclosure, filing for Chapter 13 may help you catch up on mortgage payments and prevent the loss of your home.
Key Differences Between Chapter 7 and Chapter 13
When choosing between Chapter 7 and Chapter 13, several factors come into play:
- Debt Types: Chapter 7 is ideal for discharging unsecured debts, while Chapter 13 focuses on repayment of debts over time.
- Income Requirements: Residents must pass the means test to qualify for Chapter 7, while Chapter 13 requires a steady income to adhere to repayment plans.
- Asset Protection: Chapter 7 may result in the loss of non-exempt assets, whereas Chapter 13 generally allows individuals to retain their property.
- Impact on Credit: Both options affect your credit score, but Chapter 7 remains on your credit report for 10 years, while Chapter 13 stays for 7 years.
Choosing the Right Bankruptcy Option
Deciding between Chapter 7 and Chapter 13 bankruptcy depends on your financial situation, types of debt, and future goals. To ensure you make an educated decision, it is advisable to seek guidance from a qualified bankruptcy attorney who understands Washington's laws. They can help assess your specific circumstances and recommend the best course of action.
In conclusion, navigating Washington bankruptcy law can be complex, but understanding the distinctions between Chapter 7 and Chapter 13 is essential for anyone considering bankruptcy as a solution. Evaluating your income, assets, and debts will help determine the most appropriate route towards financial relief.