Key Differences Between Chapter 7 and Chapter 13 Bankruptcy in Ohio

Filing for bankruptcy can be an overwhelming decision for many individuals facing financial hardship. In Ohio, two primary types of bankruptcy are available for individuals: Chapter 7 and Chapter 13. Understanding the key differences between these two options is crucial for making informed decisions about financial recovery.

1. Type of Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most of their unsecured debts, including credit card bills and medical expenses. This means that you can eliminate these debts without the need to pay them back. Conversely, Chapter 13 bankruptcy, known as "reorganization bankruptcy," is designed for individuals with a regular income who want to create a repayment plan to pay back some or all of their debts over a three- to five-year period.

2. Eligibility Requirements

Eligibility for Chapter 7 bankruptcy in Ohio is determined by a means test, which assesses your income, expenses, and family size. Those whose income is below the state median may qualify for Chapter 7. However, for Chapter 13, any individual with regular income can file, regardless of their income level, as long as their secured and unsecured debts fall under the limits set by the law.

3. Duration of Process

Chapter 7 bankruptcy typically takes about three to six months to complete, from the filing date until the discharge of debts. On the other hand, Chapter 13 bankruptcy involves a repayment plan that lasts three to five years. This longer process allows debtors to catch up on missed payments and manage their debts over a more extended period.

4. Asset Protection

In Chapter 7 bankruptcy, some assets may be sold to pay off creditors, although Ohio provides certain exemptions allowing individuals to protect specific property, such as a home or vehicle, to a certain value. In contrast, Chapter 13 bankruptcy allows debtors to keep their assets while they work out a repayment plan without the risk of liquidation.

5. Impact on Credit Score

Both Chapter 7 and Chapter 13 bankruptcies have significant impacts on credit scores. A Chapter 7 bankruptcy will remain on your credit report for up to ten years, while a Chapter 13 bankruptcy stays on your report for seven years. However, Chapter 13 may have a less dramatic effect on your credit score since it shows you are repaying your debts.

6. Repayment Plans in Chapter 13

In Chapter 13, debtors create a structured plan to repay debts, which is approved by the bankruptcy court. This plan outlines how much you will pay each month based on your income and expenses. Failure to adhere to the plan may result in dismissal of the bankruptcy case, which could lead to further financial difficulties.

7. Future Financial Transactions

While both types of bankruptcy can affect your ability to secure loans, it may be more challenging to obtain credit after Chapter 7 due to the complete discharge of debts. In Chapter 13, since you are actively repaying your debts, lenders may view you as a lower risk, potentially allowing for better options to borrow in the future.

In conclusion, determining whether to file for Chapter 7 or Chapter 13 bankruptcy in Ohio involves understanding the distinct differences in eligibility, asset protection, and repayment structure. Each option has its unique benefits and consequences, making it essential to evaluate your financial circumstances and consult with a bankruptcy attorney to choose the best path to financial recovery.