There are numerous different kinds of personal bankruptcy available. For many people, Chapter 7 bankruptcy is what they think of when they hear the word bankruptcy. They think about someone needing to sell off some of their property and getting a discharge of their unsecured debts.
However, many people will actually qualify for Chapter 13 bankruptcy rather than Chapter 7 bankruptcy. There are two primary differences between these two forms of bankruptcy, other than their differing requirements for who qualifies to file them.
What are those major differences?
Chapter 7 bankruptcy requires that you liquidate your assets
Before the courts will grant you a discharge in a Chapter 7 bankruptcy filing, you will first have to disclose your personal property to the trustee overseeing your case and allow them to liquidate assets if necessary to repay your creditors.
While there are exemptions for your property that can protect home equity and your ownership interest in a vehicle, you may have to let go of some of your personal property for a Chapter 7 filing. The faster discharge in a Chapter 7 filing is one of the reasons why there is a strict income limit and a requirement that you pass a means test.
Chapter 13 bankruptcy requires a repayment plan
You can make a lot more money and still qualify for Chapter 13 bankruptcy. You also don’t have to worry about liquidating your personal property. However, you will have to make monthly payments to the courts to repay your unsecured creditors for three years or longer as part of a Chapter 13 filing.
Understanding the differences between the different kinds of personal bankruptcy can help you better make decisions about your financial future.