Once you’ve decided that filing for bankruptcy is the best way to handle your debt, you’ll probably choose between Chapter 7 and Chapter 13. However, it’s crucial to understand how your choice ultimately affects your assets and financial future. Here’s how Chapter 7 and Chapter 13 differ according to bankruptcy law.

What Is Chapter 7 Bankruptcy?

Also called “liquidation bankruptcy,” Chapter 7 bankruptcy lets you wipe out unsecured debts such as medical and credit card bills. In return, you have to sell most of your property to pay off creditors. 

The bankruptcy law restricts this filing to those who pass the means test for Chapter 7. This test determines whether or not you have enough disposable income to pay back your debts. Also, your household income must not exceed your state’s median income.

Chapter 7 may be ideal if you have limited income or you don’t own a home. You may also benefit from this type of bankruptcy if you want to keep your future income, or you don’t want debt limits. Once your property is distributed, and your debt is discharged, you may not have to worry about repaying creditors.

How Is Chapter 13 Different From Chapter 7 Bankruptcy?

Compared with Chapter 7 bankruptcy, Chapter 13 may not require you to sell your property. But you need to submit a repayment plan wherein you agree to pay back your debts over a set time, usually within three to five years. Your income, property, and debt type will determine the amount that you have to pay. For this reason, Chapter 13 bankruptcy is also called reorganization bankruptcy. While you get to keep secured assets, you have to restructure your debts instead of wiping them out.

Under the bankruptcy law, you may qualify for Chapter 13 bankruptcy if you are an individual filer who has a regular income, with unsecured debt under $419,275, and secured debt under $1,184,200. Unsecured debts refer to obligations not guaranteed by collateral, while secured debts are backed by assets such as a home or a car. 
 

Consider many financial factors when filing for bankruptcy. If you’re looking for an experienced attorney well-versed in bankruptcy law, trust Hackworth, Ferguson & Thompson in Piedmont, MO. The established law firm can also provide you with dedicated and skillful legal representation for family law, corporate law, criminal law, personal injury law, and other practice areas. Call them today at (573) 223-4247 to schedule an appointment, or visit their website to get in touch with them online.