The Differences Between Chapter 7 and Chapter 13 Bankruptcy

One practice that has become unfortunately common in recent years of economic recessions and financial hardships is that of filing for bankruptcy. There are different types of bankruptcy that apply to different situations, but the two main types of bankruptcy filings are Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. There are three main differences between these two types of bankruptcy that every individual facing bankruptcy should know and understand.

1) Eligibility Requirements Determine Everything

Before contacting Bankruptcy attorneys, know that not everyone qualifies for the same bankruptcy proceeding. Which type of bankruptcy a person qualifies for depends upon both the individual’s financial situation and ability to repay certain outstanding debts. To qualify for chapter 7 bankruptcy, an individual’s disposable income must be low enough to pass the chapter 7 means test. For chapter 13 proceedings, an individual cannot have more than $3,947,255 outstanding in unsecured debt or $1,184,200 in secured debt to remain eligible. Chapter 7 is available for both individuals and businesses whereas chapter 13 is available only to individuals.

2) Asset Liquidation vs Debt Repayment


The two main types of bankruptcy—chapters 7 and 13—both involve debt resolution, but the mechanism by which they achieve this result is different. While chapter 13 bankruptcy focuses on debt reorganization and establishing new payment plans, chapter 7 almost universally involves asset liquidation, or, the selling of an individual’s or business’s property to cover outstanding debts. If you or someone you know needs advice from Consumer Bankruptcy Attorneys, visit https://www.lawyers.com/legal-info/bankruptcy/consumer-bankruptcy/ for more information.

3) The Timeframes Involved Are Different

When a person files Chapter 7 bankruptcy, it typically takes three to five months for that person to receive a discharge, as it bases the discharge upon the liquidation of the individual’s valuables to settle outstanding debts. With chapter 13 bankruptcy, it typically takes three to five years for a person to receive a discharge as the discharge depends on the completion of all planned payments ordered by the court during the bankruptcy proceedings.

The different types of bankruptcy have different advantages and disadvantages. The primary advantage of chapter 7 bankruptcy is that it allows individuals and businesses to settle their outstanding debts and get a fresh start on building a new financial future. The primary advantage of chapter 13 bankruptcy is that it allows individuals to keep most of their property upon completion of their court-ordered payment plans. Each one depends upon both eligibility requirements and individual needs. If you or someone you know is facing bankruptcy, contact a consumer bankruptcy attorney today for more information.

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