Chapter 7 Vs. Chapter 13

Once you have made the decision to file for bankruptcy, it is time to start making decisions. In order to make the process go faster, it is a good idea to consider which type of bankruptcy is right for you. As an individual or part of a couple, you have two options available to you: Chapter 7 and Chapter 13. Both types of bankruptcy share the same goal of freedom from debt, but they are two distinct ways of going about it; your situation and personal preference will be the major deciding factors, so you can go into your first appointment with an idea of what you need.

Chapter 7

This type of bankruptcy is very close to complete debt erasure; only government loans, debt to the IRS, and student loans remain after a Chapter 7 is completed. In exchange for this, asset liquidation is required, with some exemptions for certain homes, vehicles, and important items. Chapter 7 bankruptcy is a very thorough and precise process, and because of the strict requirements, most people who qualify for this type of bankruptcy do not lose anything they wish to keep. If you have unstable income or no income, this is probably the best fit for you.

Chapter 13

This type of bankruptcy is closer to debt consolidation; it is not erasure of debt, but reduction of payment. Instead of paying each creditor every month, your debt will be reduced to a single, affordable monthly payment based on your income and expenses. This single payment is distributed among creditors by a trustee, and you will not be required to have contact with your creditors during your bankruptcy. Chapter 13 does not require asset liquidation; in exchange for this, your debts will not be erased. This is the type of bankruptcy you will want to file if you have stable income but cannot manage your debt on your own.

Means Test

In order to find out whether or not you qualify for a Chapter 7, you must take the Means Test. This is a series of very simple calculations that subtract all of your expenses from your income and determine whether or not you can afford to pay off your debts. Passing the Means Test means that you qualify for a Chapter 7; failing usually means that you do not, although certain exceptions can be made very rarely. Although you do not have to file a 7 if you qualify for one, in most cases it is the best decision. Whatever you decide, your attorney can use this information to best counsel you.

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