What are the differences between Chapter 13 and Chapter 7 bankruptcy?


Quick Answer

Differences between Chapter 13 and Chapter 7 bankruptcy include the income level of people eligible for each type of bankruptcy and the amount of time it takes to file for each, according to FindLaw. Only people whose income does not exceed a certain level can file for Chapter 7 bankruptcy.

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Full Answer

AllLaw.com explains that when individuals file for Chapter 13 bankruptcy, they present a three- to five-year plan for paying their debts. Using Chapter 13 Form 22C, people calculate the disposable income they can use to pay off debts by subtracting their monthly living expenses from their monthly income. The following sources of income can be counted in the calculation: wages or salary, self-employment earnings, pension and retirement, child and spousal support, rental income, unemployment benefits, welfare and sometimes a spouse's earnings, as of 2015.

FindLaw states that, unlike Chapter 13 cases, Chapter 7 cases do not have a payment-plan option. This difference means that Chapter 13 allows people to keep their car and home, and pay for them according to a court-ordered payment plan, whereas Chapter 7 typically requires filers either to return their car and home to the creditors, or to pay the wholesale value of the item.

FindLaw notes that Chapter 7 bankruptcy also involves a simpler process than Chapter 13 bankruptcy.

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