When you consider filing for bankruptcy, you may become familiar with the terms “Chapter 7” and Chapter 13.” However, you may not understand the nuances that exist between the two types. Both are methods of filing for personal bankruptcy. Yet, there are some important differences between them, including eligibility requirements.
Both Chapter 7 and Chapter 13 bankruptcies seek to give you a way to regain control after your finances start spiraling due to medical debt or other circumstances. Chapter 7 filings typically take between three and five months, while Chapter 13 bankruptcy cases conclude within three-to-five years.
Chapter 7 bankruptcies
Sometimes called liquidation bankruptcies, Chapter 7 bankruptcies are helpful in that they eventually forgive most debts of those who qualify. Qualifying involves taking a means test to prove that you have insufficient means to cover your debts otherwise. This type of filing may, depending on circumstances, require you to turn over some of your personal assets.
Chapter 13 bankruptcies
Chapter 13 bankruptcies involve restructuring the debts you have and creating a plan that allows you to pay back at least some of what you owe in installments. If you keep up with the terms of your payback plan, you may be able to hang on to your home and other assets when you file for Chapter 13. To qualify, you must have regular income. Your debt also needs to fall within a certain window to meet eligibility requirements.
There are different benefits and drawbacks associated with each type of filing. The type that may meet your needs better depends on your income and how much debt you have, among other variables.