What is the Difference between Chapter 7 and Chapter 13 Bankruptcy?
When researching the prospect of filing for bankruptcy, it is easy to become overwhelmed with the different types of bankruptcy available. Although there are six types of bankruptcy available, there are only two that individual debtors need to focus on, and those are Chapter 7 and Chapter 13 bankruptcy.
In Chapter 7 bankruptcy, all of the debtor’s assets are liquidated to repay outstanding debts. After this is done, all remaining debts are discharged, or erased. In order to qualify for Chapter 7 bankruptcy, you must take a means test. This means test determines whether or not your monthly income qualifies you for this type of bankruptcy. Your disposable monthly income must be below a certain amount. If you do not qualify for Chapter 7 bankruptcy, you may use Chapter 13 bankruptcy.
In Chapter 13 bankruptcy, you keep all of your personal property. The outstanding debt s restructured and is repaid over time, generally three to five years. During this time, the debtor is prohibited form incurring any more debt, and most disposable monthly income, including tax returns, is used to pay off debts.
Both types of bankruptcy require filing a petition with a bankruptcy court, are reported to the credit bureau, and are reflected on your credit report. The associated fees for Chapter 7 bankruptcy are a $245 filing fee, $39 administrative fee, and $15 trustee surcharge. The total cost to file a petition for Chapter 7 bankruptcy is $299. The fees for Chapter 13 bankruptcy are the $235 filing fee and $39 administrative fee, and the total cost to file a petition for Chapter 13 bankruptcy is $274. If your total monthly income is more than 150% below the poverty level, the fees will be waived. Chapter 7 bankruptcy remains on your credit report for 10 years, and a Chapter 13 bankruptcy remains on your credit report for 7 years.
Chapter 7 and Chapter 13 bankruptcy provide a way for a person who is overwhelmed with debt to have a fresh start. It allows for repayment of all possible debt, and also for forgiveness of some debt. Whether you have found yourself facing an insurmountable debt due to unforeseen circumstance such as illness or other hardship, or you are in the situation due to irresponsible choices, bankruptcy is a drastic step which will help you start over.
It takes time to repair your credit after filing for either Chapter 7 or Chapter 13 bankruptcy. You will face higher interest fees on loans, and it will be difficult to obtain unsecured credit cards. Over time, however, as you establish a good credit history and proof of financial debt management, your credit score will rise, and your interest rates will fall. Bankruptcy may be the first step out of debt and towards a brighter financial future.