During a twelve month period ending in September 2015, over 550 thousand people filed for Chapter 7 bankruptcy in United States courts, while over 300 thousand filed for Chapter 13 bankruptcy. Obviously debtors are not alone in the many-times stressful decision to file for bankruptcy. However, each bankruptcy case has a unique set of circumstances that should be examined before deciding which type of bankruptcy is right for that person. The determination may be based upon annual income, assets, debts, and ultimately future financial goals. Let’s examine the differences between chapter 7 and 13 bankruptcies that may aid in the decision gain a new financial start. Be sure to discuss your specific situation with your bankruptcy attorney to make this decision.
Chapter 7 Bankruptcy –
- This type of bankruptcy is also referred to as liquidation.
- It is designed to wipe out general unsecured debts such as credit cards and medical bills.
- There are qualifying points for this type of bankruptcy called a Means Test that examines the amount of income. If income is deemed too high then a debtor may need to file a chapter 13 bankruptcy.
- This type of bankruptcy usually takes about three to five months to complete.
- A trustee is appointed by the courts to handle each case. This trustee reviews all paperwork to ensure it is in order. In addition, the trustee’s job is to sell your nonexempt property to pay back your creditors. If you don’t have any nonexempt assets, your creditors receive nothing.
- This type of bankruptcy allows for a quick discharge of debts for debtors who have little or no assets and need to get rid of their unsecured debts.
Chapter 13 Bankruptcy
- This type of bankruptcy is also referred to as a reorganization.
- This type is designed to allow debtors with regular income to repay a portion of their debt through a repayment play scheduled over the course of several years. A trustee will examine the debts and assets to determine repayment plans.
- A discharge from this bankruptcy is give upon completion of all payment plans – usually 3-5 years later.
- This type of bankruptcy allows debtor to keep all property but must pay unsecured creditors an amount equal to value of nonexempt assets.
- Typically, Chapter 13 bankruptcy is for debtors who can afford to make monthly payments to get caught up on missed mortgage or car payments or pay off nondischargeable debts such as alimony or child support arrears.