If you are thinking about filing for personal bankruptcy, you may be wondering whether it is more advantageous for you to file Chapter 7 or Chapter 13. However, in many cases, it is less about whether one is more advantageous than the other, and more about which one you qualify for.
The vast majority of bankruptcy cases in the United States are Chapter 7. According to FindLaw, the major dividing line between a Chapter 7 and a Chapter 13 bankruptcy is your income level.
What is a Chapter 7 bankruptcy?
Another term for a Chapter 7 bankruptcy is a liquidation bankruptcy. This is because the courts will liquidate your belongings in order to pay off your creditors as much as possible. After this, the courts will discharge your debts.
Depending on your situation, you may be able to keep your home if you file for a Chapter 7 bankruptcy. (Usually, this depends on if the equity in your home is negative or not.) However, additional assets such as cars or second vacation homes may be subject to liquidation.
What is a Chapter 13 bankruptcy?
Another term for a Chapter 13 Bankruptcy is a reorganization bankruptcy. With a reorganization bankruptcy, you and the courts will come up with a plan to pay back your creditors over a number of years. Typically, if you have a high enough income, the courts will not allow you to file a Chapter 7 bankruptcy.
In return, the courts will not subject your assets to liquidation. As long as you are abiding by the payment plan set up by the courts, you can keep your house, cars and many other expensive assets.