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Chapter 7 & Chapter 13 Bankruptcy: What’s the Difference?

If you're in a financially tenuous situation, filing for bankruptcy can help you get a fresh start. The two most common types of bankruptcy are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Pursuing the right chapter of bankruptcy can help you get a better outcome for your bankruptcy case.

Understanding the Different Kinds of Bankruptcy

Whether you file for Chapter 7 or Chapter 13 bankruptcy, the Office of the US Trustee (a branch of the Department of Justice) will assign a bankruptcy trustee to your case. The bankruptcy trustee works with you and your creditors to try and reach a mutually beneficial arrangement among the parties.

During the creditors meeting, you will appear in bankruptcy court alongside the trustee and your creditors. During the creditors meeting, you present your current financial situation to the court, and the trustee will attempt to work with creditors to determine how to eliminate your debts.

Chapter 7 and Chapter 13 bankruptcy vary the most in how they require debtors to repay creditors. Here's what you should know:

  • Chapter 7 bankruptcy. To qualify for a Chapter 7 bankruptcy, you must make below the median monthly income for your state (roughly $3,983 before taxes in California). In a Chapter 7 bankruptcy, you liquidate non-essential assets to repay creditors. Assets exempt from liquidation include essential items such as your primary residence and most-used car. However, it is worth noting that creditors may consider your assets worthless and simply choose to eliminate your debt instead of asking you to repay it using asset liquidation.
  • Chapter 13 bankruptcy. If you make too much money to qualify for Chapter 7 bankruptcy, you'll probably end up filing for Chapter 13. Chapter 13 bankruptcy allows you to establish a 3-5 year payment plan with your creditors. Unlike Chapter 7, you will not be asked to liquidate any assets if you engage in a Chapter 13 bankruptcy.

Filing for bankruptcy can help you get back on your feet and re-establish yourself financially.

At Singleton Smith Law Offices, our knowledgeable attorneys can help you navigate the bankruptcy process. To learn more, contact us online or via phone at (951) 779-1610.