Different types of bankruptcy exist for different situations. There are forms of bankruptcy that help businesses restructure and also forms of bankruptcy that primarily help those who work as farmers or professional fishermen.
For individuals and married couples struggling with financial matters, there are usually two main forms of bankruptcy that they have to choose between. Both Chapter 7 and Chapter 13 bankruptcy are common solutions for individuals, and each chapter of bankruptcy offers different benefits and requires different actions from filers. These are some of the biggest and most important differences between Chapter 7 and Chapter 13 bankruptcy.
There are income and property limits for Chapter 7
Not everyone who hopes to file for Chapter 7 bankruptcy will qualify. They must compare their income to the state median for their current household size. Those who successfully complete the means test and qualify for Chapter 7 bankruptcy are also subject to exemption limits for their personal property. Some assets beyond those protected amounts could be vulnerable to liquidation in a Chapter 7 filing, although most Chapter 7 bankruptcies do not result in the sale of any assets.
Chapter 13 takes longer to complete
Chapter 13 bankruptcy is available to individuals with more assets and higher incomes, but it requires a structured repayment plan before the courts will grant the discharge of someone’s remaining debts. The payments will last at least three years after a Chapter 13 filing, if not longer. However, the difference in the timeline balances out when looking at the credit reporting requirements for two types of bankruptcy, as a discharge will come off of someone’s credit report 10 years after a Chapter 7 filing or seven years after a Chapter 13 filing.
There are debt limits that apply in Chapter 13 bankruptcy
Those with major unsecured debts can discharge the majority or all of what they owe, with certain exceptions, in a Chapter 7 filing. That isn’t necessarily true in a Chapter 13 bankruptcy. Although it may be possible to renegotiate more types of debt in a Chapter 13 bankruptcy, there are limits to the final amount discharged after a repayment plan is complete. The total value of secured and unsecured debts can usually be no higher than $2,750,000.
Individuals struggling to pay their bills and worried about their finances may benefit from learning more about the different types of bankruptcy so that they can choose the best option given their current circumstances. Understanding what separates Chapter 7 and Chapter 13 bankruptcies may help people choose the best solutions for their unique financial challenges. Seeking legal guidance can be helpful in this regard.
