When your finances spiral out of control and you have little, if any, chance of getting back on track within a year, you may want to consider seeking relief through bankruptcy. Depending on how much disposable income you have available, among other variables, you may find yourself considering a Chapter 7 or Chapter 13 filing.
The more you understand about how the two personal bankruptcy types differ, the better the chances of you finding the right one for your needs. Here are the key ways in which Chapter 7 and Chapter 13 bankruptcies differ.
Chapter 7 filings
Before you move forward with a Chapter 7 bankruptcy, which is a liquidation bankruptcy, you must pass a means test. The test determines whether your income is low enough for you to be eligible for this type of filing. If you meet eligibility requirements and decide to move forward, you may have to sell off certain assets that are “secured,” which might include your house or vehicle. Once you do so, the rest of your unsecured debt typically undergoes discharge.
Chapter 13 filings
If you are unable to pass the bankruptcy means test or if you have concerns about having to surrender your home or car, a Chapter 13 bankruptcy may be a good fit. With this type of bankruptcy, you come up with a repayment plan that enables you to pay back at least some of the debts you have outstanding. Once you pay back your agreed-upon part of what you owe, the rest of your unsecured debt undergoes discharge.