When medical bills, credit card bills or other debts become too much for you to manage, you may find yourself looking for ways to dig yourself out of financial turmoil. You may decide that filing for bankruptcy may be your strongest chance at getting your finances back in order, but you may not know whether you should do so through a Chapter 7 or a Chapter 13 filing.
You may not have the option of pursuing both types, because you must undergo something called means testing if you wish to pursue a Chapter 7 bankruptcy. There are other important and notable differences that exist between these two common types of personal bankruptcy filings. Understanding how they differ may help you determine your best course of action. How does Chapter 7 bankruptcy differ from Chapter 13?
Chapter 7 bankruptcy
A Chapter 7 bankruptcy may be ideal if you do not have any, or much, disposable income available to use to pay down your debts. This type of filing often involves liquidating your assets to help cover your debts. Once you do so, your other debts typically undergo discharge, giving you a chance to rebuild your financial affairs.
Chapter 13 bankruptcy
If you have at least some money available to pay back some of the debts you have outstanding, you may want to think about a Chapter 13 filing. Sometimes called reorganization bankruptcy, this type requires that you pay back a portion of your debts after coming up with a manageable repayment plan.