For most people, bankruptcy is a vague notion – something they’ve heard of but know little about. But if you’re one of the hundreds of thousands of Americans for whom debt has become insurmountable, bankruptcy has become a potential lifeline you’re hurrying to learn more about. One of the very first things you’ll want to understand is the difference between Chapter 7 and Chapter 13 bankruptcies, and whether you’re able to choose the one you prefer.

Chapter 7 and Chapter 13 bankruptcy both exist to relieve debt, but the two have significant differences.

Because Chapter 7 entirely liquidates almost all debt, most people find it more appealing than Chapter 13, which reorganizes debt under more forgiving terms but still leaves debtors having to pay back what they owe. But not everybody can qualify for Chapter 7, and those who do qualify run the risk of having to liquidate many of their assets.

The first step to be taken when you are considering filing for bankruptcy is determining whether you are eligible for either type. For Chapter 13 your unsecured debt must not exceed $419,275 and secured debt cannot exceed $1,257,850.  You must have regular income and be current in your tax filings and can’t have filed a Chapter 13 bankruptcy in the last two years or a Chapter 7 bankruptcy in the past four years. By comparison, to qualify for Chapter 7 you can’t have had a previous Chapter 7 discharge in the past eight years or Chapter 13 in the past six and, most importantly, must pass a means test. Even if you prefer to file Chapter 7, if a formula that compares your income, expenses, and family size to others in your area shows that you’re able to pay off some of your debts, you’re not likely to qualify and will be forced into Chapter 13.

Choosing between Chapter 7 and Chapter 13 bankruptcies is a big decision. Where Chapter 7 is faster and erases all eligible debt, it also does not eliminate student loans and taxes, and leaves assets such as your home or vehicle vulnerable. Determining which form of bankruptcy is best for you, as well as which chapter you qualify for, is the first step to putting yourself back on the path to financial health. An experienced bankruptcy attorney will tell you the advantages and disadvantages of each. Contact us today for guidance.

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