The income level is the primary dividing line on whether you will file for a Chapter 13 bankruptcy or Chapter 7 bankruptcy.
It simply means that those who fall below a specific level of income are qualified to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy is often simpler and even takes lesser time compared to Chapter 13 bankruptcy. The majority of bankruptcy cases are actually Chapter 7 cases and the rest are Chapter 13 bankruptcies.
But beyond the cutoff on income, the differences between Chapter 13 and Chapter 7 bankruptcies can easily confuse those who are not familiar with them.
Here is a quick explanation of the difference between Chapter 7 bankruptcy vs. Chapter 13 bankruptcy.
Differences in Terms of Car Loans and Mortgages
This is among the main differences between Chapter 13 and Chapter 7 bankruptcy. With Chapter 7, it is likely that you need to return the car or house to your creditor or arrange to pay the wholesale value of the item. With Chapter 13, you might be able to keep the care or house provided that you stay updated with the payment system ordered by the court.
Differences in Having a Past Bankruptcy
You need to wait 8 years after filing your first Chapter 7 bankruptcy. On the other hand, you just need to wait 2 years after filing your first Chapter 13 bankruptcy before you can get another discharge.
Differences in Debts Owed for Student Loans, Alimony, and Child Support
Chapter 7 bankruptcy will not discharge your debts and you cannot also avoid your support debts. If it is impossible for you to pay off the said debts by the end of your Chapter 13 bankruptcy, you are still going to owe the rest of the balance even after the end of the bankruptcy.
Differences in Nonsupport Debts Owed in Agreement, Property Settlement, or Divorce
Once the creditor, usually the spouse, raises an objection, the debt is not going to be discharged unless you can show that you still cannot pay the debts following a bankruptcy or that the benefit of removing the debt is beyond the damage that is caused to your creditor. On the other hand, any balance that remains once Chapter 13 bankruptcy ends are going to be erased.
Differences in Having Nonexempt Valuable Property
With Chapter 7, you need to surrender the nonexempt valuable property that you have except if you pay the property’s fair market value to the trustee or you exchange an equal value property provided that your trustee agrees to it. With Chapter 13 bankruptcy, you will be able to keep the nonexempt valuable property that you have.
Differences in Debts Owed Due to Previous Crimes
With Chapter 7, it is not likely for your debts to be discharged once the creditor objects and demonstrates your past actions. Meanwhile, even though you are required to pay for these debts as part of your Chapter 13 plan, this balance could be wiped out once the remaining debts are not completely paid by the end of your Chapter 13 bankruptcy.
These are just some of the many ways that Chapter 7 and Chapter 13 bankruptcies are different.