What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

Many people consider bankruptcy when it becomes clear that paying down their debts has become virtually impossible. The next step is choosing what type of bankruptcy filing based on their income, assets and the amount of debt they have accumulated. Chapter 7 and Chapter 13 are the most common types of personal bankruptcy, each with its pros and cons. The best way to find out exactly what type of bankruptcy would work best for you is to speak to an experienced bankruptcy attorney who can guide you through the process.

Do You Qualify For Chapter 7?

In order to qualify for Chapter 7 bankruptcy, you must have limited means and assets. If you earn more than the median income in your state, you probably won’t qualify for Chapter 7. If you meet the income requirement, you must have only very limited assets and only a small amount of equity in your home. If you qualify, Chapter 7 will sell off some of your assets to pay creditors, and completely discharge the remainder of your debt, giving you a completely fresh start.

Chapter 13 Can Help You Manage Your Payments

Chapter 13 is sometimes called the “wage earners” bankruptcy because it’s necessary to show that you have sufficient income to pay creditors in order to qualify. The purpose of Chapter 13 is to develop a debt reorganization plan that the court approves that lowers and spreads out your payments. Your creditors will be forced to accept the court’s decision, so it’s not merely debt renegotiation. If you have other obligations such as alimony and child support, the court will take this into consideration in approving your plan. Chapter 13 can help you keep your home, you car and other assets by helping you develop a realistic payment plan.

Filing for bankruptcy is a big decision that should only be made after a careful consideration of all your assets, debts, income and other factors. An experienced bankruptcy attorney can help you make the right choice.