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The distinction between chapter 7 and 13 bankruptcies

On Behalf of | Feb 6, 2023 | Chapter 7 Bankruptcy

Bankruptcy is the process of filing for debt relief. It’s often the preferred option for people who have large amounts of medical or credit card debt or have suffered a job loss and fallen behind on debt payments.

People have the option to file for several different kinds of bankruptcy. In most cases, people either file for Chapter 7 or Chapter 13 bankruptcy. What’s the difference between these two kinds of bankruptcy? Here’s what you should know:

Chapter 7 bankruptcy

Chapter 7 bankruptcy is also called liquidation bankruptcy because people may have to sell assets to pay off their debt. When people find this out, they often fear that this means they’ll lose everything they own just to pay off their debt. However, this is far from true.

Assets are either exempt or non-exempt. Exempt assets are anything the debtor doesn’t have to liquidate, such as work tools, home or a used vehicle. Assets that are considered non-exempt may include art collections, vacation homes or luxury vehicles – essentially, anything the creditor can live without.

Chapter 13 bankruptcy

Many people don’t want to liquidate their assets and have some kind of disposable income to pay off their debt. However, if they do plan to file for bankruptcy, they can file for Chapter 13. Chapter 13 bankruptcy is a refinancing plan, which evaluates what debts are owed and how much can be paid.

If you have overwhelming debt, then bankruptcy may be your best option. Yet, bankruptcy does have its drawbacks. For example, you can’t file bankruptcy immediately after you file the previous time and your credit score will also suffer by filing.

It’s likely in your best interest to understand what kind of bankruptcy plan is right for you.