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When you decide that you need to file for bankruptcy protection, one of the first decisions you have to make is what type of bankruptcy to file. For most people, Chapter 7 bankruptcy and Chapter 13 bankruptcy are the two options. Understanding these differences might help you to decide which type of bankruptcy best meets your needs.

The most simple difference between these two types of bankruptcy is how the debt and assets claimed are handled. In a Chapter 7 bankruptcy, your non-exempt assets are liquidated or sold by the trustee. In a Chapter 13 bankruptcy, you agree to a payment plan to settle debts.

One of the basic factors that must be considered when filing for bankruptcy is income. While some people who have a considerable income might want to file for Chapter 7 bankruptcy, that might not be possible. To qualify for Chapter 7 bankruptcy, you must pass a means test, which means you can’t have an income that is more than the median income in Florida at the time of your filing. Chapter 13 bankruptcy doesn’t have this income limit.

Previous bankruptcy filings can affect how you can file for bankruptcy. If you have filed a Chapter 7 bankruptcy in the past eight years, you can’t file another Chapter 7 bankruptcy, according to the American Bar Association. You can’t file for Chapter 13 if you have filed for a Chapter 12, 11 or 7 bankruptcy in the past four years or more. You also can’t have had a Chapter 13 bankruptcy discharged within the last two years.

Your home and vehicles might be taken in a Chapter 7 bankruptcy to satisfy your debts. There are exceptions to this. If you need your vehicle for work or can make arrangements to pay it off, you might be able to keep it. If your home meets certain requirements and you keep up with the payments, you might be able to keep it.

In a Chapter 13 bankruptcy, you can usually keep your home and vehicle as long as you meet requirements, such as paying the payments. Homestead exemption criteria are also applicable here, which means you might be able to keep your home even if you are behind on payments or in foreclosure.

Keeping up with current bankruptcy laws can be complex, so make sure you understand exactly how a bankruptcy filing will affect you prior to filing.

Source: The Florida Bar, “Consumer Bankruptcy in Florida Pamphlet” July 15, 2014