What Is the Difference Between Chapter 7 and Chapter 13?

Chapter 7 and Chapter 13 are very different processes. Chapter 7 takes only about 4 - 5 months to complete and Chapter 13 will take 3 - 5 years. The form of bankruptcy that will best suit your personal financial situation.

The method by which it will be determined whether you should file Chapter 7 or Chapter 13 will be based upon the following:

• Your assets and liabilities.
• The income you earn.
• The amount of your disposable income.
• Whether you are buying a home and how much equity you have in the home.
• Whether you have second or third mortgages.
• Whether you have a co-signer on your mortgage you need to protect.
• The types of debts you have, and whether they are secured by collateral.

Should I File Chapter 7 or Chapter 13?

The first step in determining whether you should file Chapter 7 or Chapter 13 is to take the means test. If your income is higher than the state's median, you will not qualify to file Chapter 7, and can file Chapter 13. In Chapter 13, the debts you owe (including overdue mortgage payments) are paid off over a 3 - 5 year period in an individually created repayment plan. This form of bankruptcy temporarily stops foreclosure proceedings and all other collection actions. You will have the opportunity to extend the payment of your secured debts over the entire repayment period, which can be a great advantage to homeowners. There are limits to the level of debt you can owe to qualify for Chapter 13.

In Chapter 7, a great number of debt are discharged - they are gone forever. These include credit card bills, medical bills, utilities, personal loans, some types of tax debt and others. When a debtor is released from the obligation of these debts, he or she is in a far better financial situation, free from the pressure of creditors calling day and night, and can move on with a fresh start.