If you're thinking about filing for bankruptcy, it can be helpful to learn about the different types of bankruptcy and what the difference is between them. These frequently asked questions and answers will help you understand the difference between chapter 7 and chapter 13 bankruptcy.
What's the difference between chapter 7 and chapter 13 bankruptcy?
Chapter 7 bankruptcy is a form of bankruptcy wherein the debtor asks the court to forgive his or her debts. When the case is discharged, the debts are forgiven, and the debtor does not have to pay the debts back. In a chapter 13 bankruptcy, the debtor agrees to pay back his or her debts. The debtor may pay back a portion of the debts or the entire debt. In addition to these core differences, these two type of bankruptcies also deal with your property differently and have different long-term consequences.
How do these different types of bankruptcy deal with your property differently?
If you file for chapter 13 bankruptcy, you get to keep your property, because you're agreeing to pay off some or all of your debts. If you file for chapter 7 bankruptcy, the bankruptcy trustee can seize whatever property you own that's not exempt.
What qualifies as exempt property?
Exempt property can vary state by state. However, in the majority of states, you are able to keep:
- Some equity in your home.
- Your personal property, with the exception of some high-value items.
- Your car, provided that you don't have a large amount of equity in the car.
- Retirement funds.
- Insurance policies.
- Public benefits.
What are the different long-term consequences for these two different types of bankruptcy?
From a credit standpoint, chapter 7 and chapter 13 bankruptcies are treated differently. For example, you may be able to qualify for a conventional mortgage just two years after filing for chapter 13 bankruptcy. However, you'll have to wait four years to qualify for a conventional loan after filing for chapter 7 bankruptcy.
Can you pick whether or not you file for chapter 13 or chapter 7 bankruptcy?
Not everyone will qualify for chapter 7 bankruptcy. If your income is too high, you may only qualify to file for chapter 13. To find out which type of bankruptcy you are eligible to file for, speak with a bankruptcy attorney, such as Donald T Tesch, PS. He or she will be able to tell you which type of bankruptcy is right for you. He or she can also answer any questions you might have about the differences between the two types of bankruptcy.