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The Differences Between Chapter 7 and Chapter 13 Bankruptcy

Chapter-7 and Chapter-13

When you decide to file for bankruptcy, you’re going to be facing a few decisions to make.  One such decision is exactly what type of bankruptcy you want to file for.  There are two common types—Chapter 7 and 13—as well as others (such as Chapter 11) that are outside the scope of this blog.  Most likely you will be deciding between a 7 and 13.  To help you make your choice, here are a few key differences between the two.

Chapter 7 Bankruptcy: Not for Everyone

To start with, you should understand that you may not be eligible for a chapter 7 if you make too much money.  There is a means test utilized by chapter 7; this test looks at your disposable income.  If it is above a certain amount—and this amount will vary depending on a number of factors, including where you live—then you are not able to file a Chapter 7 bankruptcy.If you are not sure whether you qualify for a Chapter 7 bankruptcy, the best thing to do is talk to a bankruptcy attorney.  He or she will be able to clear things up for you as well as offer some insight into which type of bankruptcy may be best for you in your present situation.

Other differences between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy

Of course, the differences don’t stop with the threshold income requirements.  Here are a few key differences between these two types of bankruptcy filings.

  • Eligibility to file.  While an individual may file either a Chapter 7 or 13, a business entity cannot file a Chapter 13.
  • Timing.  A Chapter 7 bankruptcy is much faster than a 13.  The former can take 3-5 months, while the latter can take 3-5 years.
  • Effect on property.  A Chapter 7 bankruptcy involves liquidating all but your exempt property; in a 13 you can keep non-exempt property if you wish.
  • Effect on liens.  In a Chapter 7, junior liens on real property will survive; in a 13 these liens may be stripped from the property after certain requirements are met.
  • Different disadvantages.  With a 7, there is no way for the debtor to catch up on payments he or she missed to avoid foreclosure or repossession.  In a 13, the debtor may have to pay part of the unsecured debts that would have been discharged in a 7.
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