As a consumer thinking about filing for bankruptcy, your two options are basically Chapter 13 and Chapter 7. You may only meet the eligibility requirements for one or the other, but some people qualify for both.
Both Chapter 13 and Chapter 7 discharge your debt and allow you to start over financially. However, they work in very different ways. If you qualify for both Chapter 7 and Chapter 13, we think you should know the differences between them before making your decision.
Type
Chapter 13 is a reorganization bankruptcy that allows you to consolidate debts without losing any property. Chapter 7 is a liquidation bankruptcy, which requires you to sell off nonexempt assets to pay off some of your creditors. Eventually, both types discharge at least some of what you still owe.
Impact on credit scores
According to Experian, a Chapter 13 bankruptcy remains on your credit report for up to seven years, while Chapter 7 remains on your report for up to 10 years. In either case, the impact on your score declines gradually over time.
Eligibility
Chapter 13 requires you to make monthly payments over a period of three to five years. This means that you must have a regular income. There are also limits to the secured and unsecured debt amounts you can owe. You can qualify for Chapter 7 bankruptcy if you do not have enough money to pay off all of your debts. You will have to undergo a means test to make this determination.
Filing fees
Though it may seem counterintuitive, even unfair, you have to pay money to file for bankruptcy. Filing fees, which do not include attorney’s fees, are $310 for Chapter 13 and $335 for Chapter 7. You may be able to waive the fee or make payment arrangements.
