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Chapter 7 and 13 bankruptcies: what is the difference?  

bankruptcy credit card.jpgChapter 7 bankruptcy and Chapter 13 bankruptcy are both ways that an individual in debt can find relief. It can be scary to think about filing for bankruptcy, but the risk is sometimes necessary to give you a fresh start.

The biggest question is this: How do you know what type of bankruptcy to file for? What is the difference between Chapter 7 and Chapter 13?

Chapter 7 bankruptcy

This is possibly the most frequent type of bankruptcy that individuals file in America. Chapter 7 bankruptcy is often called liquidation, which includes selling some or all of your nonexempt assets in order to get rid of your debt. This could include selling your car or house, but often you are allowed to keep enough to start a new beginning.

In order to qualify for chapter 7  bankruptcy, your income needs to be below a certain level. You can take a means test to see if you qualify. If not, you may be able to look toward Chapter 13 for debt relief.

Chapter 13 bankruptcy

Chapter 13 bankruptcy can help individuals who may find themselves overwhelmed by debt while maintaining an average or above average income. Instead of wiping out all debt by selling assets, this type of bankruptcy acts more as a plan to help these individuals get back on track with their finances.

Most individuals in debt who choose to file for Chapter 13 will begin a "repayment plan" that lasts between 3 and 5 years. At the end of this period, remaining debt may be discharged.

Dischargeable and non-dischargeable debt

Many people file for bankruptcy to get a fresh start without debt weighing them down. While a lot of types of debt is dischargeable, there is some that filing for bankruptcy will not wipe away.

Common debt that is dischargeable under both types of bankruptcy include:

  • Medical debt
  • Credit card debt
  • Some loan debt

Debt that the court considers non-dischargeable include:

  • Child support
  • Alimony
  • Fines that are penalty for breaking the law
  • Student loans

Deciding to file for bankruptcy is a big decision. However, knowing what you are each type of bankruptcy entails can be helpful in easing anxiety and getting the fresh start you want.

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