If you’re considering filing for bankruptcy protection because you’ve found yourself overwhelmed with bills, you should understand the differences between Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy, also known “liquidation” or “straight liquidation,” is typically the fastest and easiest form of bankruptcy. Individuals, married couples, and businesses often use Chapter 7 bankruptcy protection to get rid of unsecured debts and various financial obligations such as back rent, medical bills, and credit card debt.
What Chapter 7 Bankruptcy Doesn’t Eliminate and How to Qualify
It’s also important to know that Chapter 7 does not eliminate some debts including student loans and most back taxes, along with court-ordered alimony and child support. You will also need to obtain credit counseling, pass an “income test” as well as a “means” test to qualify for a Chapter 7 Bankruptcy. If you do not meet the requirements you will be moved into Chapter 13 Bankruptcy.
Chapter 13 Bankruptcy
Chapter 13, unlike Chapter 7, which wipes out your debt, is a way to reorganize your finances so that you are able to pay off some or all of your debts over a period of three to five years. Chapter 13, also known as a “wage earner’s plan,” requires an individual to have a regular income and be able to provide a plan to the court demonstrating they will be able to repay all or part of his/her debts.
How to Qualify for a Chapter 13 Bankruptcy
In order to qualify for Chapter 13 bankruptcy, the courts require a debtor to gather the following information: creditors’ names, addresses, and the amount of debt owed to each, as well as a statement about the individual’s financial affairs.
Source: Ebony.com, The Different Degrees of Bankruptcy, Explained, June 19, 2014