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The Differences between Chapter 7 and Chapter 13 Bankruptcy

If you are struggling with debt and considering bankruptcy, you may wonder which type of bankruptcy is best for your situation. In this blog post, we will explain the main differences between Chapter 7 and Chapter 13 bankruptcy, and how they affect your eligibility, discharge rate, property, and repayment plan.

Chapter 7 bankruptcy is also known as liquidation bankruptcy, because it involves selling some of your assets to pay off your creditors. Chapter 7 is usually faster and cheaper than Chapter 13, but it also has stricter income requirements and may result in losing some of your property. Chapter 7 is suitable for people who have little or no income and few assets.

Chapter 13 bankruptcy is also known as reorganization bankruptcy, because it involves creating a repayment plan to pay back some or all of your debts over three to five years. Chapter 13 is usually longer and more expensive than Chapter 7, but it also allows you to keep most of your property and catch up on missed payments. Chapter 13 is suitable for people who have regular income and valuable assets.

The following table summarizes some of the key differences between Chapter 7 and Chapter 13 bankruptcy:

Chapter 7 Bankruptcy

  • To be eligible you must be below median income for your county based on your household size.
  • However, you can still qualify for a chapter 7 if you are above-median in two ways:
    • First, you may have expenses that allow you to reduce your income on the means test;
    • Second, you may qualify for the business-debt exception, which does not require you to complete the means test.
  • Completion Rate:  On average, 96% of Debtors who file a chapter 7 receive a discharge.

Chapter 13 Bankruptcy

  • Based on your needs a chapter 13 may be the best option.
  • On average, 41% of Debtors who file a chapter 13, complete it and receive a discharge.
  • The length of a chapter 13 is between three and five years. In some cases you can have your chapter 13 completed before the three years.

To learn more about the pros and cons of each type of bankruptcy, you should consult a qualified bankruptcy attorney who can advise you on the best option for your specific case.