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The difference between Chapter 7 and Chapter 13 bankruptcy

On Behalf of | Apr 2, 2020 | Firm News |

The decision to file for bankruptcy is never an easy one. You will have many choices to make in this process, and the more you know the more likely you will make informed decisions.

One important distinction is the difference between a Chapter 7 and a Chapter 13 bankruptcy.

Legal options

According to advice on the Credit Karma the difference between the two types of bankruptcy comes down to the following differences: Chapter 7, also known as liquidation, allows you to clear off some or all of your debt, but it may require the surrendering of assets; Chapter 13 also enables debt discharge while allowing you to retain property through a repayment plan. The benefits of a Chapter 7 bankruptcy may include reduced monthly payments and relief from debt collectors. The disadvantages of this legal option include the loss of some assets and a negative impact on your credit rating. If your income level is too high, a court could require you to file a Chapter 13 bankruptcy.

Required paperwork

When you file for a Chapter 7 bankruptcy you will likely have to fill out a variety of paperwork. One such document, according to Credit Karma, is a bankruptcy means test. The form essentially determines if your income is below the median income level for the state you reside in. If it is, you should qualify for the option of filing a Chapter 7 bankruptcy. If it is not, you might have to fill out more forms, or file for a Chapter 13 bankruptcy. Laws in place make it mandatory that a person filing a Chapter 7 bankruptcy meet with a credit counselor.