Two of the most common forms of bankruptcy for individuals are Chapter 7 and Chapter 13 bankruptcy. These two types of bankruptcy can help individuals resolve overwhelming and overdue debts, providing financial relief for families.
When filing for bankruptcy, individuals should learn the difference between Chapter 7 and Chapter 13 bankruptcy and which type of bankruptcy applies to them. Here is what you should know:
Who can file for Chapter 7 bankruptcy?
Chapter 7 bankruptcy allows individuals to discharge most unsecured debts, including credit card bills, medical bills and personal loans. This form of bankruptcy is available to low-income households who pass the means test.
The means test determines whether an individual can afford their living expenses, such as food and clothing. If a household’s income is below the state’s median income, then individuals can file for Chapter 7 bankruptcy.
In some rare cases, a filer’s nonexempt assets may be liquidated to resolve debts. However, liquidation is typically only necessary if a filer has, for example, a second home or vehicle. After filing for Chapter 7 bankruptcy, an individual’s debts may be discharged after three to five months.
Who can file for Chapter 13 bankruptcy?
Chapter 13 bankruptcy reorganizes overwhelming debts into a payment plan. This allows a filer to pay off some of their debts. The remaining debts are discharged after about three to five years following the completion of the repayment plan. This type of bankruptcy is typically only available to people who fail the means test because they have disposable income. Yet, filers can keep property by filing for Chapter 13 bankruptcy.
If you want to file for bankruptcy, you may need to learn about your legal options.
