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Most individuals tend to file for Chapter 7; most businesses opt for Chapter 13. But not always. Some business owners opt for Chapter 7, and some homeowners end up filing a Chapter 13...
The biggest differences between Chapter 7 and Chapter 13 bankruptcy are what happens to your property and who qualifies financially. Chapter 7 requires you to sell property that isn’t exempt to pay off your debts.
Which should I use—Chapter 7 or Chapter 13 bankruptcy? Most people who file for bankruptcy choose Chapter 7 if they meet the eligibility requirements. Chapter 7 is a popular choice because, unlike Chapter 13, it doesn't require filers to pay back debts.
Chapter 7 and Chapter 13 bankruptcy differ in their approaches to repaying your creditors and their ability to protect assets you may want to keep. While both can provide relief from crippling debt, they also do significant harm to your credit and ability to borrow money.
Most individuals have three options, and understanding Chapter 11 vs. Chapter 13 vs. Chapter 7 is important in making the right decision. Bankruptcy can be complex, and even a small mistake in how you file can substantially change the outcome of your case.
Start by learning about the key differences between the two types of bankruptcy, including when you qualify for one and not the other. And then read about the pros and cons of Chapter 7 and Chapter 13, and which works best in various situations.
When should you file for Chapter 7 instead of Chapter 13? Chapter 7 bankruptcy is appropriate when the following circumstances apply: 1. You are unable to repay debt in a repayment plan. If a debtor cannot afford to repay creditors for three or five years in a Chapter 13 plan, it may be best to file for Chapter 7 (if qualified). 2.
Most people prefer Chapter 7 bankruptcy because, unlike Chapter 13 bankruptcy, it doesn't require you to repay a portion of your debt to creditors. In Chapter 13 bankruptcy, you must pay your creditors all of your disposable income—the amount remaining after allowed monthly expenses—for three to five years.
Chapter 7 is designed for individuals with unsecured debts, such as credit card balances or personal loans, while Chapter 13 can accommodate those with secured debts, like mortgage payments and auto loans. Both Chapter 7 and Chapter 13 bankruptcies require credit counseling before filing.
Given the choice, most people prefer Chapter 7 since it’s cheaper and faster compared to Chapter 13. But, qualifying for Chapter 7 is also more difficult because you’ll have to pass a means test, which analyzes your family size, income, and expenses.