Chapter 7 and 13 bankruptcy are both kinds of bankruptcy that can help you get out of debt. There are significant differences between them to consider, though.
Chapter 7 bankruptcy is usually for those who cannot repay their debts or who may be underemployed. If you cannot work or aren’t earning enough to repay your debts, then liquidation bankruptcy through Chapter 7 might be a good choice.
Chapter 13 bankruptcy is different since it offers a repayment plan. With this form of bankruptcy, you pay back a portion of your debts over the next three to five years.
Choosing the right kind of bankruptcy for you
It isn’t as simple as saying which kind of bankruptcy you want. There are requirements that you will need to meet to qualify for Chapter 7 or 13. For Chapter 7 bankruptcy, you may need to pass the means test, go through credit counseling and meet the state’s residency requirements. If you earn too much compared to your debt load or can’t pass the means test, then you may not be able to use Chapter 7 bankruptcy.
If you can’t qualify for Chapter 7 bankruptcy, then Chapter 13 may be a good alternative. This form of bankruptcy is usually used by people earning a wage who can repay what they owe if they have some form of debt relief. Chapter 13 bankruptcy is more like a consolidation loan, but once the specific number of payments are made, the remaining qualified debts are discharged. This is helpful for those who are able to make a reduced, consolidated payment in the long-term but who may not be able to pay back everything they owe.
The right kind of bankruptcy could help you get back on track financially
Either one of these bankruptcies may be the right choice for you based on your circumstances. It’s worth thinking carefully about your current income, your ability to repay debt and the long-term implications of both kinds of bankruptcy before you select the kind of bankruptcy you’d like to go through. With the right plan, you may be able to resolve your debts sooner than you thought.