What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is what most people think of as bankruptcy — a legal method for people to get rid of debt that they cannot pay. It is not a way for people to get out debt that they just don’t want to pay. Only debtors who cannot repay any part of their debt are eligible for Chapter 7 bankruptcy. The test for determining who qualifies is called the “means test.” Despite what your creditors may say, most people are still eligible for Chapter 7 bankruptcy relief.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a debt reorganization and repayment plan for people who can pay all or part of their debts in installments over a period of time. Under current bankruptcy law, if your income exceeds the median for a family of your size in your state, you may be required to file a chapter 13 case, even though you might otherwise be eligible for a chapter 7.
In Chapter 13 you would file a repayment plan with the court. This plan is based on many factors, including the types of debt you have, your current income and your current expenses. Payments into the plan last for three to five years, during which you cannot use credit or sell certain property without permission of the court.
If you complete the chapter 13 plan successfully, your obligation to repay any debts not paid through the bankruptcy payment plan is, in most cases, discharged. Exceptions to the discharge of your obligation to pay includes debts for child support and alimony; most student loans; certain taxes; most criminal fines and restitution obligations; certain debts which are not properly listed in your bankruptcy papers; certain debts for acts that caused death or personal injury; and certain long term secured obligations.