Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy in Connecticut: What’s the Difference?

When individuals in Connecticut face overwhelming debt, they may consider filing for bankruptcy as a way to gain financial relief. Understanding the differences between Chapter 7 and Chapter 13 bankruptcy is crucial for making an informed decision. This article explores the key distinctions between these two types of bankruptcy filings.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most of their unsecured debts, such as credit card bills, medical bills, and personal loans. The process is generally quicker than Chapter 13, typically lasting about 3 to 6 months from the filing date to discharge.

In Connecticut, individuals must pass a "means test" to qualify for Chapter 7 bankruptcy. This test compares your income to the median income for a household of your size in Connecticut. If your income is below the median, you may qualify automatically. If it is above the median, additional calculations will determine eligibility.

One of the significant advantages of Chapter 7 bankruptcy is the ability to eliminate qualifying debts completely. However, it does require the liquidation of certain non-exempt assets, meaning some of your possessions may be sold to pay off creditors. Fortunately, Connecticut has specific exemptions that can protect some of your property, including your home, retirement accounts, and personal belongings.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, on the other hand, is designed for individuals with a regular income who want to reorganize their debts. It allows debtors to develop a repayment plan to pay off all or part of their debts over three to five years. This option is ideal for those looking to keep their assets while managing debt repayment.

In Connecticut, filing for Chapter 13 involves creating a repayment plan that is approved by the bankruptcy court. During this period, creditors are prohibited from pursuing collection activities, providing a significant relief from the stress of debt collection. The repayment plan typically requires regular monthly payments to the bankruptcy trustee, who then distributes the funds to creditors.

One of the primary benefits of Chapter 13 is its ability to stop foreclosure proceedings. If you're behind on your mortgage, Chapter 13 allows you to catch up on missed payments while keeping your home. Furthermore, certain debts, like tax debts and child support, can potentially be addressed through this plan.

Key Differences Summary

Duration: Chapter 7 usually takes a few months, while Chapter 13 spans three to five years.

Debt Discharge: Chapter 7 discharges most unsecured debts, whereas Chapter 13 involves a repayment plan for all or part of the outstanding debts.

Asset Liquidation: Chapter 7 may require the sale of non-exempt assets, while Chapter 13 allows individuals to keep their assets by adhering to a repayment plan.

Eligibility Requirements: Chapter 7 involves passing a means test, while Chapter 13 is available to those with a regular income who meet certain debt limits.

Conclusion

Choosing between Chapter 7 and Chapter 13 bankruptcy in Connecticut requires careful consideration of your financial situation and long-term goals. Consulting with an experienced bankruptcy attorney can provide valuable guidance tailored to your unique circumstances. Understanding the nuances of each bankruptcy type can ultimately help you regain control of your finances and move towards a fresh start.