Main Differences Between Chapter 7 Bankruptcy And Chapter 13 Bankruptcy

While any person facing large amounts of debt is likely to be experiencing similar emotions and facing similar problems as another person who is in a comparable situation, the best way to resolve the situation is not the same for everyone. However, it is important for anyone in this situation to realize that there is a way to reach financial solvency again and become debt-free. Depending on your unique situation, either Chapter 7 bankruptcy or Chapter 13 bankruptcy will likely be one of the best options for you. There are several differences between these two types of bankruptcy that will limit those who can apply for that type of bankruptcy or lead a person to choose one over the other. The main differences between these two types of bankruptcy are as follows:

  • Qualification Anyone can file for Chapter 13 bankruptcy, whereas Chapter 7 bankruptcy requires debtors to meet a few qualifications first. In order to file for Chapter 7 bankruptcy, a person must first and foremost pass the means test, proving that their income is low/insufficient enough to cover their debts, according to state standards.
  • How Debt Is Handled In Chapter 7 bankruptcy, a large portion of a persons debt is discharged or forgiven. What assets and possessions a person has that are not protected through exemption will be liquidate or sold off in order to pay off as much of their debts as possible before the remaining amount of eligible debts is discharged. In Chapter 13 bankruptcy on the other hand, a person will come up with a 3-5 year repayment plan, based on their income, that is geared to paying off most, if not all, of their debt. At the end of this repayment plan, it is possible that some of the remaining debt will be discharged, but this is not nearly as common as it is with Chapter 7 bankruptcy.

Determining whether you are eligible to file for a certain bankruptcy or which type is best for your situation can be extremely complex and frustrating.

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