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How Chapter 7 and Chapter 13 bankruptcy differ

On Behalf of | Jan 20, 2022 | blog, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy |

If you are struggling with debt as a Tennessee consumer, you might wonder whether filing for bankruptcy is the right choice. Before you decide, it can be helpful to understand the difference in Chapter 7 and Chapter 13 bankruptcy so that you will know what to expect and what your obligations will be.

Chapter 7 bankruptcy

With a Chapter 7 bankruptcy, you generally do not have to pay back any debts that are eligible for discharge in bankruptcy. If you have sufficient assets, any that are not considered exempt may be sold by the trustee to cover some of these debts. Retirement accounts are considered exempt as well as property and money the debtor needs to live on, and in practice, at least some debtors will be able to keep all of their property. Eligibility for Chapter 7 is primarily based on income and the entire process lasts just three to five months. It generally remains on your credit report for 10 years.

Chapter 13 bankruptcy

People with a steady source of income may be eligible for Chapter 13, which is more complex and involves restructuring the debts into a payment plan that last three to five years. The debtor is not required to pay the entire debt but might need to catch up on mortgage and similar payments in order to keep that property. Chapter 13 usually remains on the credit report for seven years.

It is important to know that certain types of debt, such as back child support payments, cannot be discharged in either type of bankruptcy, and it is extremely difficult to discharge some other types, such as student loans. However, you can discharge two of the main sources of debt, credit cards and medical bills. While bankruptcy does have an impact on your credit score, you can begin rebuilding it afterwards.