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Chapter 7 vs. 13 Bankruptcy: What's the difference?

As families move through their lives, debt may start to build up from late credit card payments, unexpected medical bills or other sources. When that debt becomes overwhelming, families may turn to bankruptcy as a form of relief.

Two of the most common forms of bankruptcy are chapter 7 and chapter 13 bankruptcy. Here are the differences between them and how they can benefit you if you are facing large amounts of debt.

Chapter 7

A chapter 7 bankruptcy provides debt relief by liquidating assets, which means turning belongings and investments into money that pays creditors. If there is still debt afterwards, it is discharged without being repaid. Chapter 7 is a quick process, lasting about four to five months.

This is a choice to consider if you have very little means of making debt payments or want to begin rebuilding your credit immediately. However, you must qualify. The main criterion for filing chapter 7 bankruptcy is that you make less money per month than the state's median income.

Advantages:

· Protects home from foreclosure

· Protects certain assets from liquidation, such as your car and 401(k) savings

· Creditors must stop harassing you

· After liquidation, the rest of your debt is discharged

Disadvantages:

· You must qualify

· Secured debt cannot be discharged (student debt, mortgage loans, etc.)

· Valuable or precious belongings could be liquidated

Chapter 13

Chapter 13 bankruptcy does not have qualifications like chapter 7, so it is available to more people. It creates a repayment plan to fulfill your debt payments over a period of three to five years. Your assets are protected from liquidation during this time and the payment plan reorganizes your debt to be manageable for your situation.

It is a good choice for those who do not qualify for chapter 7 and/or want to protect their home and car while they work toward repaying debt. There are a few other reasons chapter 13 may be a better choice, even if you qualify for chapter 7.

Advantages:

· Protects home from foreclosure

· Protects all assets from liquidation, including non-exempt property

· Creditors must stop harassing you

· Secured debt cannot be discharged but it can be worked into your repayment plan

Disadvantages:

· The process is longer than chapter 7 bankruptcy

· You must still repay your debt

Making the choice to file for bankruptcy can be tough. If you are facing large amounts of debt and feel that bankruptcy is the right decision for your family, an experienced bankruptcy attorney can discuss your options with you and help you through the process to ensure that you will overcome your debt successfully.

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