What’s the Difference Between Chapter 7 and 13 Bankruptcy?
Even contemplating bankruptcy is a serious decision. Bankruptcy can remove your debts and help you regain a sense of financial stability. However, it also comes with serious repercussions to your credit and your ability to get it. Before you decide to take the plunge, it’s important that you learn as much as possible about bankruptcy.
Before you can decide which type of bankruptcy you need to declare, you should determine if you’re eligible to go through the proceedings. Each type of bankruptcy has its own determining factors, ranging from the amount of debt you owe to how much equity you have built up in your personal property. In general, you’ll need to be financially insolvent before you can declare bankruptcy. This means you owe at least $1,000 and cannot repay it on your own without outside intervention or assistance.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy can help you wipe out your debts without repayment. However, there are several factors to consider before you can declare Chapter 7 bankruptcy. You’ll need to pass a “means test” which determines if your income level, minus a few key expenditures, is above a certain level. If it is, you won’t be eligible to file this type of bankruptcy. Chapter 7 bankruptcy can lead to your assets being liquidated. They’ll be sold, and the proceeds will be given to your creditors. In exchange, you’ll be declared debt free. Some of your assets may be exempt. This varies from province to province, but can include your home, your car and some of your personal property.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy involves working closely with a bankruptcy trustee to come up with a repayment plan. You’ll be required to make payments for months or even years. However, this can stop creditors from calling you and can even stop wage garnishment. If you complete your repayment plan, your remaining debts will be cleared and you can start fresh. Because a Chapter 13 bankruptcy consolidates your debt into one monthly payment and can even reduce the amount you owe, this is an attractive option for many debtors. Chapter 13 bankruptcies also don’t cause your assets to get liquidated, so you can typically keep your personal property.
Remember, no matter what type of bankruptcy you declare, certain debts can’t be eliminated. Debts like student loans and child support payments will still have to be paid. However, Chapter 13 bankruptcy can add these to your payment plans, helping you to pay them back more quickly.
The type of bankruptcy you choose to declare depends on many different factors. You may not be completely able to control which type of bankruptcy you file for. However, by working closely with a bankruptcy trustee, you can determine which type of bankruptcy is right for your situation. You’ll be one step closer to having healthy finances once more.