Before determining which type of bankruptcy will work better for you, you need to determine your eligibility. Before accepting a filing, the first thing courts look at is the petitioner’s income and debt. For Chapter 7, the debtor needs to have an income at or below the state’s median income, or to have a disposable income that is too small to structure a debt repayment plan. Debtors whose income exceeds the Chapter 7 requirements may have their filing converted to a Chapter 13. On the other hand, Chapter 13 rules place limits on the amount of debt owed.
Both Chapter 7 and Chapter 13 have minimum time limits as to previous bankruptcies. You may file for Chapter 7 if your previous Chapter 7 filing was more than 8 years ago and any prior Chapter 13 filing occurred more than 6 years ago. When it comes to Chapter 13, the respective time limits are 4 and 2 years. In both cases, debtors must go to approved debt counseling before filing.
Chapter 7 liquidation
Once your Chapter 7 filing is accepted, the court will set up the process for you to discharge your debt. In this type of bankruptcy, the trustee sells your assets and uses the proceeds to pay off your debts. Certain types of property may not be sold off. Exemptions vary by state and typically consist of property that is necessary for you to continue functioning on a personal and professional level. In most cases, people get to keep their homes, cars, insurance policies, professional tools, household goods and personal items. There may be value limits on highly valuable items such as jewelry.
Chapter 13 repayment
On the other hand, a Chapter 13 bankruptcy puts in motion a debt repayment plan. Depending on the amounts and types of debt you have as well as your regular disposable income, the trustee will set up a plan that will have you repaying some or all of the debt within a period of three to five years.
Filing for bankruptcy can seem like a complicated, intimidating process. If you are considering this step, chances are you are already suffering from financial stress. Consulting an experienced attorney can help you figure out the best way to proceed and give you peace of mind.