How do Chapter 7 and Chapter 13 bankruptcies differ?

How do Chapter 7 and Chapter 13 bankruptcies differ?

| Mar 11, 2021 | Firm News

Once your financial situation starts to spiral out of control, it often proves difficult to get things back on track. If you have no feasible way of repaying what you owe creditors within the next few years, you may want to think about filing for bankruptcy. Depending on your situation, you may decide to move forward with a Chapter 7 or Chapter 13 filing. Both are personal bankruptcy types, but there are some key differences between the two formats.

According to Quicken Loans, some of the differences between Chapter 7 and Chapter 13 bankruptcies include how long they take, how you qualify for them and how they handle debt.

Chapter 7 bankruptcies

Intended for those with limited incomes, Chapter 7 bankruptcies are also known as liquidation bankruptcies. It generally takes between three and five months for your debts to undergo discharge through this type of filing. You may, too, have to turn over some of your personal assets to help cover your debts. You must pass a means test before you may start a Chapter 7 bankruptcy case.

Chapter 13 bankruptcies

Chapter 13 bankruptcies are reorganization bankruptcies, meaning they require you to reorganize your debts so that you are in a position to start paying back at least part of what you owe. The process involved is longer than that of a Chapter 7 filing, and it may last between three and five years. There are income requirements and limitations that determine your eligibility for a Chapter 13 bankruptcy case.

If you prefer to move forward with a Chapter 7 filing but are unable to qualify, you may try to take the means test again in six months to see if things have changed.