Pennsylvania Bankruptcy Law: Key Differences Between Chapter 7 and Chapter 13

Pennsylvania Bankruptcy Law: Key Differences Between Chapter 7 and Chapter 13

Understanding the intricacies of bankruptcy law in Pennsylvania is crucial for individuals facing financial difficulties. The two most common types of bankruptcy filed by individuals are Chapter 7 and Chapter 13. Each has distinct characteristics, processes, and implications. Below, we explore the key differences between these two types of bankruptcy in Pennsylvania.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," involves the discharge of most unsecured debts. This means that if you qualify, many of your debts can be wiped out entirely.

Here are some important points about Chapter 7 bankruptcy in Pennsylvania:

  • Eligibility: To qualify for Chapter 7, individuals must pass a means test, which assesses their income and expenses. If your income is below the state's median, you are generally eligible.
  • Asset Liquidation: Under Chapter 7, non-exempt assets may be sold off to pay creditors. However, Pennsylvania has its own set of exemptions that allow individuals to keep certain assets, such as a portion of your home equity and personal property.
  • Timeline: The Chapter 7 process typically takes about three to six months from filing to discharge.
  • Impact on Credit: A Chapter 7 bankruptcy remains on your credit report for ten years, affecting your credit score significantly.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as "reorganization bankruptcy," allows individuals to keep their property while repaying debts over an extended period, typically three to five years.

Key aspects of Chapter 13 bankruptcy in Pennsylvania include:

  • Repayment Plan: Individuals must propose a repayment plan to make installments to creditors over the designated period. Meeting this plan is essential to keep non-exempt assets.
  • Eligibility: There are debt limits for Chapter 13. As of the latest guidelines, secured debts must be less than $1,257,850 and unsecured debts less than $419,275.
  • Improved Credit Impact: Although a Chapter 13 bankruptcy stays on your credit report for seven years, it can help rebuild your credit more effectively than Chapter 7, as it shows a commitment to repaying your debts.
  • Protection from Foreclosure: Chapter 13 can help prevent foreclosure on your home. As part of the repayment plan, you can catch up on missed mortgage payments while protecting your property.

Choosing Between Chapter 7 and Chapter 13

The decision between Chapter 7 and Chapter 13 bankruptcy in Pennsylvania depends on individual financial circumstances.

  • If you have little to no disposable income and want to eliminate unsecured debts quickly, Chapter 7 might be the better option.
  • On the other hand, if you are facing foreclosure or have significant assets that you wish to keep, Chapter 13 could be more beneficial.

Consulting with a qualified bankruptcy attorney is advisable to help navigate these complexities and determine the best course of action based on your specific financial situation.

Regardless of the option you choose, both Chapter 7 and Chapter 13 provide valuable pathways to regain financial stability and relieve the burden of overwhelming debt in Pennsylvania.