Choosing to file for bankruptcy is a difficult decision that should not be taken lightly. Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in several ways and has different eligibility restrictions. Here are a few of the key differences you should note before you decide between Chapter 7 and Chapter 13 bankruptcy.
No means test for Chapter 13
It is generally more difficult to qualify for Chapter 7 bankruptcy than Chapter 13 bankruptcy, as Chapter 7 requires that your income not exceed the threshold. To be eligible for Chapter 7 bankruptcy, you generally must pass the means test, a complex calculation used to determine your disposable income and determine whether you earn less than the median income of a similarly sized household in Florida.
On the other hand, any individual or company with less than $2.75 million in secured and unsecured debts will be legally allowed to file for Chapter 13 bankruptcy.
Chapter 13 bankruptcy requires restructuring of debt
The biggest difference between Chapter 13 and Chapter 7 bankruptcy is that Chapter 13 bankruptcy involves a restructuring, rather than an elimination, of the debt. With a Chapter 13 bankruptcy, you will work with professionals to come up with a three- to five-year plan to pay back a portion of the debts you owe through consolidated monthly payments to creditors.
Chapter 13 gives you a chance to keep your property
Chapter 7 bankruptcy protects your exempt assets, but sells off the rest, and discharges unsecured debt (e.g., credit cards and medical bills). Chapter 13 on the other hand gives you time to catch up on your loans and gives you the opportunity to hold on to the property you want to keep.
Generally, Chapter 7 bankruptcy, which stays on your record for 10 years, may be better for those who have less income coming in and only have unsecured debt. Chapter 13, which stays on your record for seven years, may be better for those earning more than the median income in Florida, owe significant back taxes, and do not want to liquidate certain assets. Carefully review both options before deciding which one is best for you.
