The Differences Between Chapter 13 and Chapter 7

Bankruptcy offers a great opportunity to get a fresh financial start, although it can be a complex process. One of the most perplexing parts of bankruptcy is figuring out which type to file, as each has its advantages and disadvantages.

Let's take a quick look at some of the most notable differences between two of the most common types of bankruptcy, Chapter 7 and Chapter 13.

Difference #1: Chapter 7 Is Usually Faster

The primary component of a Chapter 7 bankruptcy is liquidation of the filer's nonexempt property. The proceeds from these sales are then used to pay off as much of the debt as possible, with anything that can't get paid off being discharged. This liquidation process typically lasts three to five months. In contrast, Chapter 13 bankruptcy's defining characteristic is the repayment plan, which usually takes three to five years to complete.

Difference #2: Chapter 7 Has Stricter Eligibility Requirements

It's easier to wipe away more of your debts in a Chapter 7 bankruptcy compared to a Chapter 13 bankruptcy. Because of this, Chapter 7 has more stringent eligibility requirements, most notably, passing the means test. To pass this financial test, you'll need to prove that your income is lower than the median income of a comparable household in your state.

Difference #3: It's Easier to Keep Your Property With Chapter 13

Both types of bankruptcy provide certain exemptions for property, such as a car, household goods, and some of the equity in a home. When a property is exempt, your creditors can't go after it. However, creditors can go after your nonexempt property and use that property to pay off your debts. Chapter 13 bankruptcy has a mechanism in place to prevent this.

The catch is that you must pay your unsecured creditors through your repayment plan. You'll normally need to make enough payments so that they add up to an amount that's equal to the value of the nonexempt property you're trying to keep.

You Can Switch Bankruptcies

No matter which bankruptcy you choose, your circumstances or goals might change. In that case, you can always opt to convert your bankruptcy case from 13 to 7 or vice versa.

Still Unsure About Which Bankruptcy to File?

By contacting me at The Craig Black Law Firm, you'll get an experienced bankruptcy attorney who can help you decide which bankruptcy is right for you. When you call, I'll be answering the phone myself, and I will be more than happy to discuss your case and guide you through this challenging time. Call me today at (678) 888-1778.