Once you find yourself deeply in debt, it may become increasingly difficult to dig your way out. If a fresh financial start is something you need, you may be giving some consideration to filing for personal bankruptcy.
Per Quicken Loans, Chapter 7 and Chapter 13 bankruptcies are two personal bankruptcy types, but there are some notable differences between them. Recognizing how they differ and how you qualify for each may help you make a well-informed decision about whether and how to move forward.
The Chapter 7 bankruptcy
Sometimes referred to as liquidation bankruptcy, a Chapter 7 bankruptcy filing may serve your needs if you do not have a realistic path to paying off your debts within the next few years. This type of filing is only available to you if your income falls below a certain threshold. So, you need to take a bankruptcy means test before moving forward with a Chapter 7 bankruptcy case. This type of filing may require you to sell off some of your assets to pay back creditors.
The Chapter 13 bankruptcy
If you fail to qualify for a Chapter 7 bankruptcy or prefer to follow a format that may allow you to hang on your home, vehicle and other valuables, you may want to think about a Chapter 13 filing. With a Chapter 13 case, you create a new payback plan. As long as you stick to the terms of your agreement and keep current on all payments, you should be able to keep your personal assets with this type of filing. You must also meet income requirements to qualify.
Chapter 7 and 13 bankruptcies also differ in how long they take. You may be able to settle a Chapter 7 case much faster than you would a Chapter 13 bankruptcy filing.