Personal bankruptcy is commonly filed using either Chapter 7 or Chapter 13 bankruptcy. Each type of bankruptcy has its pros and cons, as well as its own guidelines, rules and requirements. Some people may think of bankruptcy filings as being the same, but there are stark and important differences between these two common forms of bankruptcy. Let's take a look at the characteristics of Chapter 7 and Chapter 13 bankruptcy today.
Chapter 7 bankruptcy is most commonly associated with it's signature process -- debt discharge. This process will clear out many of your old debts, though not all of them. For example, student debt is nearly impossible to discharge through any bankruptcy filing. During debt discharge, some of your assets may be liquidated in order to pay off your creditors. But in the long run, a Chapter 7 bankruptcy can help you get back on your feet, financially speaking.
Chapter 13 bankruptcy is best known for its repayment plan. In Chapter 13, your reorganize your debts under a new payment plan that usually lasts three or five years. During this time, you should not miss payments. A Chapter 13 bankruptcy can help protect major assets that you have from seizure, such as a car or a home.
There is an income threshold for bankruptcies, so if you fall below the threshold you will be eligible for Chapter 7, whereas if you are above the threshold then you are eligible for Chapter 13 bankruptcy.
Source: FindLaw, "Chapter 7 vs. Chapter 13 Bankruptcy," Accessed Aug. 17, 2017