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What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

Posted on in Bankruptcy
What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

There are a lot of differences between Chapter 7 and Chapter 13 bankruptcy. You need to know these differences before you file for bankruptcy – depending on your circumstances, you might only be eligible for Chapter 13 bankruptcy. Even if you are not limited to this type, it might be a better choice for you than Chapter 7. Talk to an experienced bankruptcy attorney about the differences between Chapter 7 and Chapter 13 bankruptcy to determine which type is best for your situation. Your attorney can also explain the bankruptcy process to you in detail and guide you through each step, advising you as you work to regain control of your finances.

Chapter 13 and Chapter 7 bankruptcy are both designed for individuals who have more personal debt than they can realistically repay. Personal debt refers to credit card debt, medical debt, and in some cases, small business debt. Other types of bankruptcy include Chapter 11, Chapter 12, and Chapter 9. These are meant for businesses, family farmers and fishermen, and municipalities, respectively.

You Have to Qualify to File for Chapter 7 Bankruptcy

This is not the case with Chapter 13 bankruptcy. To qualify for Chapter 7, also known as liquidation bankruptcy, you need to pass the means test. This test determines how much disposable income you have each month after making your required payments like rent, your mortgage, groceries, or utility bills. If you earn less than your state's median salary, you automatically pass the means test. If you make the median salary or more, you need to complete the test's questions to determine your Chapter 7 eligibility. Any individual who does not qualify for Chapter 7 may file for Chapter 13 bankruptcy.

You Retain More Control Over the Process with Chapter 13 Bankruptcy

When you file for Chapter 7 bankruptcy, the court appoints a trustee to handle your case. He or she determines which pieces of your property are exempt from the liquidation process, such as your car and any equipment you need for work, then sells the rest. He or she uses the profit from this asset liquidation to repay as much of your debts as possible. The trade-off for having your property liquidated is that your debt is completely forgiven.

With Chapter 13, you work with your trustee and creditors to develop a repayment plan. This plan, generally spanning three to five years, is a combination of credit counseling, careful budgeting, and changed financial behaviors to slowly repay your debts. You do not lose property with Chapter 13, but the process is much slower to complete and you do have to repay the money you owe.

Illinois Bankruptcy Attorneys

Deciding to file for bankruptcy is a deeply personal choice. If you are facing a substantial amount of personal debt and considering filing for bankruptcy to alleviate this pressure, contact Illinois bankruptcy attorneys at the Law Offices of Newland & Newland, LLP. We are a team of experienced bankruptcy, foreclosure, and loan modification attorneys who can explain the differences between Chapters 7 & 13 bankruptcy to you and help you determine which type is right for you. If you decide to file for either type, we are here to guide you through each step of the process and represent your interests as you get your financial independence back.

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