Filing for bankruptcy is one of the best ways of finding debt relief. However, choosing between the two most common types of bankruptcy may not be easy.
Given how that your decision is likely to affect your life, it is crucial to know how both types of bankruptcy work. With that, it will be much easier to make a wise decision.
What are the differences?
While both types of bankruptcies are supposed to get you out of a financially messy situation, the key differences lie in their eligibility requirements, the time frames involved, and how debts are dealt with.
For instance, Chapter 7 is a liquidation form of bankruptcy that seeks to wipe off your debts but remains on your credit report for ten years. On the other hand, Chapter 13 is more into reorganization or repayment of these debts and will be on your report for seven years. Most people prefer Chapter 7.
Which type of bankruptcy do you qualify for?
To be eligible for Chapter 7, you must pass the means test, which evaluates your income, expenses, and family size relative to the median state income. Additionally, you cannot have a previous Chapter7 discharge within the last eight years or Chapter 13 in the last six years. The vast majority of people who file do qualify for Chapter 7.
To qualify for Chapter 13, your secured debts should be less than $1,395,875, while unsecured debts cannot exceed $465,275, although the figures are periodically adjusted. You should also have a regular income and be up to date with your tax filings. Finally, you should not have filed for Chapter 13 in the last two years or Chapter 7 in the past four years.
You cannot file for either type of bankruptcy if you have a failed petition within the past 180 days
Making the right choice
While Chapter 7 is quicker and cheaper to file than Chapter 13, the best choice depends on your eligibility and end objectives. If you have any concerns, it is advisable to get the necessary help to ensure you reap the benefits.