Understanding the distinctions between Chapter 7 and Chapter 13 bankruptcies is important for those facing financial challenges. Both chapters of bankruptcy offer a path to financial relief. However, they operate differently and cater to distinct financial situations.
Exploring the key differences between Chapter 7 and Chapter 13 empowers individuals to make informed decisions about which bankruptcy option aligns with their circumstances.
Chapter 7 bankruptcy
Chapter 7 bankruptcy is a “liquidation bankruptcy.” It involves the sale of non-exempt assets to discharge outstanding debts. This form of bankruptcy is suitable for those with limited income and significant unsecured debts, such as credit card balances or medical bills. The process is relatively swift. It takes between three to six months, providing filers with a fresh start by wiping away qualifying debts entirely.
Chapter 13 bankruptcy
In contrast, Chapter 13 bankruptcy focuses on reorganizing and repaying debts over a span of three to five years. This option is suitable for those with a steady income who can create a viable repayment plan. Under Chapter 13, filers can keep their assets, such as homes or cars, while adhering to a court-approved repayment plan. This approach allows individuals to catch up on missed payments while settling outstanding debts over time.
Per the Motley Fool, about 70% of consumers who file for personal bankruptcy end up filing for Chapter 7. Whether seeking a swift discharge through liquidation or opting for a structured repayment plan, the choice between these bankruptcy chapters depends on one’s financial circumstances and long-term goals.
