Which bankruptcy chapter is right for you? Chapter 7 or Chapter 13? This is a common question asked by those considering bankruptcy. There are many factors to consider when making this decision, and the answer is not always black and white. In this blog post, we will explore the key differences between Chapter 7 and Chapter 13 bankruptcy so that you can make an informed decision about which chapter is best for you.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a form of debt relief that allows individuals to discharge most of their debts. In order to qualify for Chapter 7 bankruptcy, individuals must pass a “means test.” This test assesses an individual’s ability to repay their debts. If the individual is found to be unable to repay their debts, they may be eligible for Chapter 7 bankruptcy relief. Once an individual has filed for Chapter 7 bankruptcy, an automatic stay is put in place. This stay prevents creditors from taking any collection actions against the debtor. Chapter 7 bankruptcy can provide much-needed relief for individuals who are struggling with debt. It can help them get a fresh start and rebuild their financial future.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a type of bankruptcy that allows individuals to repay all or part of their debts over time, usually three to five years. Chapter 13 bankruptcies are also known as “wage earner’s bankruptcies” because they are typically used by people who have a regular income but find themselves unable to keep up with their debt payments. In Chapter 13 bankruptcy, the debtor proposes a repayment plan to the court and, if the court approves it, the debtor makes payments to a trustee who then distributes the funds to creditors.
Chapter 13 bankruptcies can be advantageous for debtors because they allow them to keep some of their assets and repay their debts over time, but they also have some disadvantages, such as the fact that they can be more expensive than other types of bankruptcies and can take longer to discharge.
Difference between Chapter 7 and Chapter 13 Bankruptcy
Chapter 7 and Chapter 13 bankruptcy are the two most common types of bankruptcy. Chapter 7 bankruptcy is also known as straight bankruptcy or liquidation bankruptcy. It involves the sale of your assets to pay off your debts. Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows you to keep your assets and repay your debts over time. Chapter 7 bankruptcy is typically used by people who have low income and few assets. Chapter 13 bankruptcy is typically used by people who have a regular income and assets that they want to keep.
Conclusion
The biggest difference between Chapter 7 and Chapter 13 bankruptcy is that in Chapter 7, the debtor’s assets are liquidated to repay creditors. In Chapter 13, debtors keep their property and must agree to a repayment plan over 3-5 years.