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What makes a Chapter 13 bankruptcy different from Chapter 7?

Unless you work as a farmer, rancher or professional fisherman, you will probably file for Chapter 7 or Chapter 13 bankruptcy. Many people are only familiar with the basics of a Chapter 7 bankruptcy, even though there are significant restrictions on who qualifies for a Chapter 7 bankruptcy.

Chapter 13 bankruptcy is available to more people in more situations than Chapter 7 bankruptcy is. What are the big differences that separate a Chapter 7 filing from a Chapter 13 filing?

There is no need to pass a means test

To qualify for a Chapter 7 bankruptcy, you will have to perform a means test. You adjust your income to account for certain permissible expenses and then compare the adjusted figure with the median income for your household size.

Chapter 7 bankruptcy is only available to those whose current income is below the median for their household size in the state where they live, but a Chapter 13 bankruptcy is accessible even to those with higher levels of income.

You won’t have to sell your property

In a Chapter 7 bankruptcy, the person filing must liquidate some of their assets. They have to report their assets and debts, and any property that they cannot exempt will be subject to liquidation to repay their creditors before discharge. Liquidation is not part of a Chapter 13 bankruptcy, so your assets won’t be at risk.

You have to make structured payments

A Chapter 7 bankruptcy can lead to a discharge of your unsecured debts within a couple of months, but a Chapter 13 bankruptcy takes longer to complete. You will need to make at least three years of scheduled payments to your unsecured creditors before you can discharge the remaining amount owed on those debts.

It comes off your credit report faster

When you receive a discharge for a Chapter 7 bankruptcy, it will remain on your credit report for 10 years. A Chapter 13 bankruptcy comes off of your credit report after just seven years.

Understanding the differences between Chapter 7 and Chapter 13 personal bankruptcies can help you choose the type of filing that is best for your current circumstances. Reviewing your financial records and learning more about bankruptcy filings can help you regain control over your financial situation.