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Chapter 7 and Chapter 13 bankruptcy. What's the difference?

If you are considering bankruptcy, you may have heard of the terms Chapter 7 and Chapter 13 and wondered which would be better for you. Knowing some important differences in how these bankruptcy cases work can help you stay informed as you navigate this process.

Chapter 7 and Chapter 13 petitions address two different types of debt situations by presenting two divergent solutions. Your attorney can give you more tailored advice based on the facts of your case.

How Chapter 7 works

Chapter 7 deals with debt by selling off most of your property and dividing the proceeds among your creditors. The law provides several exemptions, allowing you to keep a house, car and personal property below a particular value. You may be able to keep secured property by signing an agreement to keep paying the debt on it even after the discharge of the rest of your debts. The entire process typically takes between three and six months.

You may not file a Chapter 7 petition until at least six years have passed since your last one. To petition, you need an income under a legal standard, which usually falls in the state's poverty line.

Chapter 13 repayment plan

Chapter 13, on the other hand, is a repayment plan. The trustee adds up your debts and comes up with a three-to-five-year repayment plan. Once the plan is complete, it discharges the remainder of your debt. The chief advantage of a Chapter 13 proceeding is that you get to keep secured property that North Carolina's Chapter 7 exemptions do not cover.

In order to qualify for a Chapter 13, you need enough regular disposable income to make payments every month. Disposable income is the money you have left over after you pay for life necessities such as rent, food, and transportation. North Carolina also has an upper limit on how much you can owe when you file a Chapter 13 petition.

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