Chapters 7 and 13: Know the Difference

When your debts have become unmanageably high and you have decided to file for bankruptcy, one of the first things you’ll have to determine is whether to apply for a Chapter 7 or a Chapter 13 bankruptcy. The choice between the two is key to how your debts are to be settled, and the degree of property protection that you get.

If you opt for a Chapter 7 bankruptcy, you will have to relinquish your liquid assets to pay for part your debts. Liquid assets are those that can be quickly converted to cash, which must be handed over to the courts, who will, in turn, dole them out to your creditors. To qualify for a Chapter 7 bankruptcy, however, you’ll first have to pass a means test which will determine if your income is less than the median income for your family size. Chapter 7 bankruptcy takes the shortest time to settle, taking between 4-6 months to complete.

Chapter 13 bankruptcy, meanwhile, means that you opt to pay off your debts gradually within three to five years through a repayment plan approved by the courts. Unlike in Chapter 7 bankruptcy, you get to retain your assets, and pay off your debts through a regular source of income. You also get to propose a repayment plan, which is subject to the court’s approval.