Chapter 7 vs chapter 13 bankruptcy: What's the difference?
If you're considering bankruptcy to wipe your debt, you may be wondering which chapter you should file: chapter 7 or chapter 13? Both allow individuals to discharge major debts related to their mortgage, credit cards, or hospital bills. The deciding factor is usually related to how much income you have.
In a chapter 7 bankruptcy, you surrender any non-exempt property (houses, cars, collectibles, etc.) to immediately discharge your debt. In a chapter 13 bankruptcy, you can keep all of your property, but slowly repay some of your debt over several years.
|Ch. 7||Ch. 13|
|Income requirement:||Your average monthly income should be less than the median income in your state. This is known as the means test.||No income requirement, but you should be able to make monthly payments towards your debt.|
|Cost to file:||$335, plus an additional $15-$20 filing fee. The court may allow you to pay in installments if you can prove financial hardship.||$310, plus an additional $15-$20 filing fee. The court may allow you to pay in installments if you can prove financial hardship.|
|Effect on financed homes and cars:||You will have to surrender your mortgaged home or financed vehicles back to the lender, with some exceptions.||You may keep your mortgaged home or financed vehicles, but you'll need to create a repayment plan.|
|Effect on owned property:||If you own any non-exempt property (like multiple cars, vacation homes, or collectibles), you will have to surrender the items, or sell them at fair market value.||You may keep all of your property.|
|Effect on credit:||Bankruptcy will stay on your credit history for up to 10 years.||Bankruptcy will stay on your credit history for up to 10 years, but creditors may favor ch. 13 because it shows that you were able to pay back some of your debt.|
|Average time to complete:||3 to 4 months.||3 or 5 years.|
|Should I hire a lawyer?||Maybe. If you have few assets and carefully disclose your debts and income, you may be able to successfully complete your bankruptcy without a lawyer.||Yes. An attorney will have the knowledge and experience to create a repayment plan that is fair to both you and your creditors.|
Regardless of what bankruptcy chapter you file, it's important to consult a bankruptcy attorney early in the process to ensure that your case is filed quickly and accurately.