Bankruptcy is no longer as taboo as it once was. In fact, in the wake of the housing market crash in the mid 2000s, bankruptcy has actually become a saving grace of sorts for many American families. While financial struggle knows no prejudice, bankruptcy does, and for the thousands of American families that are above the income cap for filing Chapter 7, Chapter 13 is their only hope. This separation in filing restrictions has many people asking just what is the difference between Chapter 7 and Chapter 13 bankruptcy?
As stated above, the main consideration when deciding which form of bankruptcy is right for you is income. This stands to reason when you consider that more than 70 percent of bankruptcy petitions are for Chapter 7, the middle class option for bankruptcy. Of the remaining 30 or so percent that file bankruptcy, their higher incomes put them in more of a repayment rather than discharge debt situation.
How mortgage and auto loans are handled between the two types of bankruptcy is also a main difference. In Chapter 7, your home and auto can be taken back by the lienholder unless you choose to reaffirm the debt or pay its wholesale value. In Chapter 13, so long as you maintain your current payment plan, you may keep both. Another big difference is what happens to nonexempt property. In Chapter 7, valuable nonexempt property may be seized, while in Chapter 13 you can keep your valuable nonexempt property.
For individuals that have filed bankruptcy before, the type of bankruptcy you filed may also dictate if you can file again. An individual may file Chapter 7 bankruptcy if their previous one was a Chapter 13. Likewise, if you have filed Chapter 13 previously, you may file Chapter 13 again. While there are many other differences between these two bankruptcies, the above differences are the most commonly asked about. If you are considering filing bankruptcy and are unsure of which petition to file, speaking to a trusted bankruptcy attorney may help.