The Key Differences Between Chapter 7 And Chapter 13 Bankruptcy


Are you ready to file for bankruptcy but not sure of the differences between Chapter 7 and Chapter 13? Here are some key differences between the two forms of bankruptcy.

Repayment Plan

One of the biggest differences between these two forms of bankruptcy is going to be the repayment plan. A Chapter 7 bankruptcy does not require a repayment plan, and assets will be liquidated to pay off as much of the debt as possible. Chapter 13 does require you to repay a portion of your debts back to the creditors over several years. You do not make individual payments to creditors but make one monthly payment.

Medium Income

Each form of bankruptcy is also going to have its own requirements for medium income, which is what you've made as income over the half-year prior to your bankruptcy filing. While each state has its own rules regarding what qualifies for medium income, in general, you'll find that the requirements for Chapter 7 bankruptcy will require lower median income when compared to Chapter 7 bankruptcy.

Disposable Income

Another factor that is used for qualifying for bankruptcy is disposable income, which is what you have remaining after you've paid for your fixed monthly expenses. Once again, disposable income limits vary by state, but having enough disposable income may force you to qualify for Chapter 13 bankruptcy because you are able to make payments toward that repayment plan.

Lawyer Fees

When comparing the lawyer fees between the two types of bankruptcy, a Chapter 7 case is going to be cheaper than a Chapter 13 case. This is due to Chapter 13 cases taking longer to complete, and there is more lawyer involvement to have the bankruptcy approved. Since Chapter 7 bankruptcy goes much faster if you qualify, you'll save on legal fees.

Credit Impact

Since Chapter 7 bankruptcy wipes out your unsecured debt, it will end up making a greater impact on your credit history. Creditors will see it on your credit report for a longer period of time, and it can impact your ability to borrow money until it is removed. Chapter 13 lasts for a shorter period of time due to you partially repaying your debts with the repayment plan, so it can help you get things back to normal financially much faster. This is something to consider if you will eventually want to borrow money for a home and you know for sure you need to borrow money to do so. 

To learn more, contact a lawyer about Chapter 7 bankruptcy.

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Goodbye Bad Debt. Hello Good Life.

Debt is not always your fault. Sometimes something unexpected happens, like job loss or a bad illness, and the bills just pile up faster than you're able to handle. Eventually things settle down and you think your life is back on track again, but you still find yourself unable to pay those sky-high bills. Declaring bankruptcy is usually an option. It can help you move on, not only financially, but mentally. There are several types of bankruptcy that are allowed under U.S. law, and you'll need to meet with a bankruptcy attorney to find out which one you are most likely to qualify for. We share more information about this and related bankruptcy attorney topics on this website, so dig right in and start reading.

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