Chapter 7 or Chapter 13: Which Type of North Carolina Bankruptcy is Best for You? Skip to main content

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Chapter 7 or Chapter 13: Which Type of North Carolina Bankruptcy is Best for You?



Is bankruptcy the right road for you?

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When many people think about filing for North Carolina bankruptcy, they think of it in general terms as a single thing to be done to deal with debt. In fact, there are many decisions surrounding bankruptcy, chief among them which type of bankruptcy to file. For consumers, the choices are Chapter 7 or Chapter 13, but which is better for you?

Chapter 13 Versus Chapter 7's Effect On Your Credit Score

When you first file bankruptcy of either type, your credit score will take an initial hit. However, if you’re already drowning in debt and struggling to pay bills, it’s likely already taking a beating, and filing either chapter can stop the free fall.

Chapter 7 remains on your credit report for 10 years, but that can be outweighed by the fact that your unsecured debt is wiped out, and you can start rebuilding credit within six months after discharge. Chapter 13 remains on your credit for seven years, but you can’t start rebuilding for a while.

In short, Chapter 7 offers more sweeping debt relief and the ability to begin re-establishing credit faster than Chapter 13. Not everyone will qualify for Chapter 7, but, if you can, it may be better for you if you have lots of unsecured debt and not a lot of assets to protect.

Chapter 13 Versus Chapter 7's Effect On Your Assets

In order to file Chapter 7 bankruptcy, you must have income at or below the median for North Carolina, which is $40k for a single filer, $52k for a couple, and increases by the number of people in your household. Even if you earn more, you may still qualify.

Higher earners must pass a Means Test which demonstrates that your debt outweighs your ability to pay, no matter how much you earn. In Chapter 7, a certain amount of equity in your home and vehicles can be protected plus household items like furniture, clothing, computers, etc.

With Chapter 13, you can get on a repayment plan to catch up on past due debt. This can be better if you have greater equity in your home, more assets to protect, are behind on your mortgage and need to catch up, or cannot pass the Means Test but still need debt relief.

Chapter 13 Versus Chapter 7's Effect On Your Peace of Mind

Being in debt is stressful and overwhelming. If you have mostly unsecured debt like credit cards, medical bills, and the like, Chapter 7 can wipe it out within just a couple of months. Plus, as soon as you file, all debt collections activity will stop.

This is a fresh start with a line drawn in the sand so you can step across and move forward debt-free. This can be life changing and offers immediate peace of mind. Filing Chapter 13 will also stop the bill collectors from calling and can give you breathing room.

However, Chapter 13 repayment plans can be tough to stick with, so you’ll have to be on a strict budget for three to five years and this can be difficult for many to maintain. Once you’re done with your repayment plan, your bills will be caught up and you can move on with your life.

Find Out More Today

To see if bankruptcy is a fit for your debt circumstances, come to the Law Offices of John T. Orcutt for a free debt consultation. Call +1-919-646-2654 now for a free North Carolina bankruptcy appointment at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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