The Differences between Chapter 7 and Chapter 13 Bankruptcy

Deciding to file bankruptcy is a big decision.  Deciding which type of bankruptcy to file is a very important part of that decision.  Do you know the difference between Chapter 7 and Chapter 13 bankruptcy?  Read this basic information, then ask a Minnesota bankruptcy lawyer to help you decide which form of bankruptcy best suits your needs.

The Biggest Difference between Chapter 7 and Chapter 13

When you file for Minnesota Chapter 7 bankruptcy, you are asking the court to forgive most or all of your debts.  If you own property that is not exempt, the property could be taken by the court, sold, and any profit would be used to pay your creditors.  That is the exception rather than the rule, however, because the majority of people filing bankruptcy do not own excessive property.

If you file Chapter 13, you work with the court to create a repayment plan that will cover all or at least some of your debt, paid over a period of time.  The payment amount will vary according to your income, they types of debt you owe and the amount of property you have.  You do not lose any property when you file Chapter 13.

How Do You Know Which Type of Bankruptcy is Right for You?

Before the bankruptcy laws were changed, anyone could choose to file either type of bankruptcy.  The majority of people wanted to file Chapter 7 because, in most cases, it eliminates all or many of your debts.  However, now your income is the basis for deciding if you are eligible to file Chapter 7.  All people considering Chapter 7 are required to take a “means” test.  This test determines if your income for the last six months prior to filing was above or below the state average income for a household your size.  If it was under, you will qualify to file Chapter 7.  However, if it is above the average, you need Chapter 13 bankruptcy protection.

Filing for bankruptcy is a serious solution for a serious problem.  A Minneapolis bankruptcy lawyer is the most qualified person to help you decide if it is the right move for you and, if so, which form of bankruptcy will best suit your personal circumstances.  Don’t be afraid to contact a lawyer and see if bankruptcy is a sensible solution to your financial problems.

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