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How are Chapter 7 and Chapter 13 bankruptcies different?

On Behalf of | Jul 30, 2020 | Bankruptcy | 0 comments

Once your finances become too much for you to handle, you may start sorting through your options and exploring whether filing for personal bankruptcy may lead to some relief. You may know that Chapter 7 and Chapter 13 bankruptcies are common types. However, you may not know much about what makes them different or what type might better meet your needs. 

According to Quicken Loans, there are important distinctions that exist between Chapter 7 and Chapter 13 bankruptcies. The right type for you may depend on your household income and how much money you have available to put toward your debts, among other variables. 

The Chapter 7 bankruptcy

A Chapter 7 bankruptcy is also known as liquidation bankruptcy. In order to qualify for this type of bankruptcy, you must first pass a means test that compares your household income against the median one in New York. 

If you pass the test and initiate the Chapter 7 bankruptcy, the process may involve selling some of your assets to pay back your debts. You may, for example, have to sell your home or car, but this is not definite. 

The Chapter 13 bankruptcy

With a chapter 13 bankruptcy, rather than sell your property, you must restructure your debts so that they become more manageable for you. In most cases, it takes between about three and five years to receive a discharge through this method. In a Chapter 13 case, you may be able to keep your home as long as you do not miss any mortgage payments and stick to your reorganized debt repayment plan.