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What are the 3 big differences between Chapter 7 and 13 filings?

On Behalf of | Sep 28, 2021 | Bankruptcy And Debt Relief

Individuals and businesses can potentially file for bankruptcy. Individuals dealing with overwhelming amounts of personal debt often choose between a Chapter 7 bankruptcy and a Chapter 13 filing.

Trying to determine which form of bankruptcy would work better requires that you first understand the main differences between a Chapter 7 and a Chapter 13 bankruptcy.

What differentiates the two?

Chapter 7 has more restrictions about who can qualify

A Chapter 7 bankruptcy filing is a streamlined process. Only those who can pass the state means test will usually qualify for Chapter 7 bankruptcy. You will have to adjust your income and compare it with the state median to determine if you qualify.

Those with higher incomes who don’t qualify for a Chapter 7 bankruptcy may still be able to qualify for a Chapter 13 filing instead, as the financial limitations allow for multiple times more income.

Chapter 13 bankruptcy protects more of your property

When you file a Chapter 7 bankruptcy, you may need to liquidate or sell off some of your personal property to complete the process and qualify for the discharge of your unsecured debt.

People may need to use bank accounts or refinance their homes to repay creditors to finish the Chapter 7 process. Only what you exempt is safe from liquidation.

In Chapter 13 bankruptcy, you don’t have to worry about exemptions for your property because the liquidation of your assets is not required.

Chapter 13 bankruptcy takes longer because of the repayment plan

In a Chapter 7 bankruptcy, you can go from a filing to a discharge in a couple of hearings and a few months. A Chapter 13 bankruptcy will take much longer, as you typically will have to comply with a repayment plan for somewhere between three and five years prior to your discharge.

However, both the Chapter 7 and Chapter 13 bankruptcy will typically come off your credit report at about the same time, as a Chapter 7 filing stays on your record for 10 years after your discharge, while a Chapter 13 will stay on your credit report for seven years after your discharge.

Understanding the big differences between the two most popular forms of individual bankruptcy can help you decide which would be a better solution for you.