While going through financial problems, people often look up to bankruptcy filing as a means to get rid of their debt. However, consumers can file under Chapter 7 or Chapter 13 bankruptcy. There are differences in how the debts are treated in these two chapters. Moreover, the qualification criteria also differ for these chapters. As a result, it is important to understand the differences between these two chapters.
Benefits of Chapter 7 bankruptcy
This bankruptcy chapter is complete in 3-6 months compared to chapter 13, which takes around 3-5 years. Most of the dischargeable debts, including non-priority unsecured debts like medical and credit card debts, are discharged. When you file for bankruptcy, an automatic stay is placed, preventing creditors from pursuing any collection action against you. Bankruptcy filers can choose between state and federal exemptions to protect their property. Any nonexempt property the filers have can be bought back after giving the Trustee the agreed amount.
Benefits of Chapter 13 bankruptcy
Unlike Chapter 7, where bankruptcy filers must close their business, people filing for Chapter 13 bankruptcy can continue operating their business. Some debts which are non-dischargeable in Chapter 7 bankruptcy can be discharged in Chapter 13 bankruptcy. While Chapter 7 gets you a discharge of almost all your debts, you cannot file for another Chapter 7 unless 8 years have passed. This time is 4 years in the case of Chapter 13. Depending on your gross average income over the past 6 months, your Chapter 13 repayment plan can last for 3 years compared to 5 years. If a change of circumstances makes it difficult for you to complete your repayment plan, it can be modified. Compared to Chapter 7, you can retain more assets in a Chapter 13 bankruptcy filing.