What Are the Difference between Chapter 7 and Chapter 13 Bankruptcy?

by Dori Tery on June 14, 2013

The Difference between Chapter 7 and Chapter 13 Bankruptcy is about:

A final alternative in the most extreme case of debt is personal bankruptcy. This is not a step to be taken lightly. It doesn’t wipe out all your obligations – for example, student loans, alimony, and tax liabilities remain – but it relieves some of the financial pressure.

The primary contributing factor to bankruptcies is major illness and the costs and loss of income associated with them. Another factor contributing to the large number of bankruptcies is the easy availability of credit that leads to living beyond your means. Divorce and job loss are also major contributors to bankruptcy.

The two most commonly used types of personal bankruptcy are Chapter 13, the wage earner plan, and Chapter 7, straight bankruptcy. There are several other types of bankruptcy, but because they are so specialized, we discuss only Chapter 13 and Chapter 7 in detail. The primary difference between Chapter 13 and Chapter 7 bankruptcy is that under Chapter 13 you deign a plan that will allow you to repay the majority of your debts, while under Chapter 7 bankruptcy, most of your debts are discharged. But in order to qualify for Chapter 7 bankruptcy as opposed to Chapter 13 bankruptcy, you have to meet a Chapter 7 means test that compares your income to the median income in the United State, you can file for Chapter 7 bankruptcy.

However, if it is greater than the median income in the United States, you will have to do other calculations regarding your income and allowable expenses to determine if you can file for Chapter 7 bankruptcy. This means test went into place as the result of legislation signed into effect in 2005 and resulted in a sharp drop in the number of bankruptcies – it also resulted in a lot of people filing for bankruptcy just prior to the new law taking effect. Prior to the new legislation, in 2005, there were over 2 million bankruptcies across the United States. That is about one in every 53 US households. By 2007 that number had dropped to just over to 725,00, but was creeping up again recently.

Use Debt Consolidation to avoid Bankruptcy!

difference between chapter 7 and chapter 13 bankruptcyDebt consolidation loans are very appealing because they offer hope to those who cannot keep up with their current payment schedules. Before taking out a debt consolidation loan, however, keep in mind that you may be paying a higher interest rate on the consolidation loan that you are on your current debt,. If the problems that led you into this dilemma in the first place are not solved, do you think a debt consolidation loan will result in a permanent solution? What would you need to do to solve debt problems? Read more…


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