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2 ways Chapter 7 and 13 bankruptcies differ

On Behalf of | Nov 29, 2023 | Bankruptcy

Realizing that you have more bills than money every month is disheartening. It’s the factor that may make you recognize that you need to do something to reclaim control of your finances. 

Filing bankruptcy is one option that may help you to enjoy a fresh start. Once you know that you’re going to file, you have to determine what type. The two most common forms of consumer bankruptcy are Chapter 7 and Chapter 13. While they both help you to erase debts, there are some differences between the two.

How creditors are paid

In a Chapter 7 bankruptcy, the court takes control of your non-exempt assets. Those are liquidated to pay creditors. Once the funds from the liquidation are exhausted, the remaining balance on accounts included in the bankruptcy are discharged. 

In a Chapter 13 bankruptcy, you will make payments to pay off the debts. This is based on how much money you have remaining in your paychecks after you pay off what the trustee deems essential bills. You’ll make these payments for a predetermined period. Balances remaining after you make those payments are all discharged.

Length of bankruptcy

A Chapter 7 bankruptcy is the faster option. This type of bankruptcy typically takes three to five months to complete; however, it stays on your credit report for 10 years. A Chapter 13 bankruptcy takes three to five years to finish, but it remains on your credit report for seven years. 

The decision to file for bankruptcy is one that must be taken seriously. Ensuring you file for the type that’s the best for your needs is critical. It may be beneficial to have someone on your side who can help you through the process.