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Difference between Chapter 7 and Chapter 13 Bankruptcy |
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There are two types of bankruptcy that exists. They are Chapter 7 and Chapter 13. The following are the
differences of both these type of bankruptcies:
Chapter 7
- This is a most difficult form of bankruptcy.
- One should make less than the median income.
- If one makes more than the median income, they will be subjected to a “means test”.
- If court determines that the person has resources to pay, then the case could be converted to Chapter 13.
- This bankruptcy erases most of the unsecured debts such as credit cards and medical bills.
- Means Test
- Figure your six months monthly income.
- Subtract monthly child-support payments, taxes, student loans, and other items that the court cannot or will not dismiss.
- Based on the remaining income-if you do not have enough money to pay at least $100 a month of your unsecured creditors
over the next five years, you will qualify for Chapter 7 and your unsecured debts could be dismissed.
- On the other hand, if you do not have enough money to pay at least $100 a month, you may be required to file Chapter 13.
Chapter 13
- This requires borrowers to repay at least some of their debts before erasing others.
- If one makes the required payments which is called “disposable income”, the unpaid balances will be erased.
- If one does not make the required payments, the bankruptcy will be dismissed and the creditors can resume their collection efforts.
- Disposable Income
- Figure the past six months monthly salary.
- Subtract monthly child-support payments, taxes, student loans, and other items that the court cannot or will not dismiss.
- Then deduct your monthly “living expenses” set by IRS.
- The amount remaining is your “disposable income” which must be paid to your creditors.
- If your income is above your state’s average income for your family size, you will make monthly payments for at least
five years. If it is below your state’s average income for your family size, you will make payments for at least three years.
Note:
- Some unsecured debts, including student loans, child support, and recent taxes, typically can’t be erased,
regardless of the chapter filed.
- If you have a moderate to high income, you may decide that the option of negotiating with your creditors
to settle your debts or you can use the professional services of a debt reduction, debt negotiation,
and debt settlement company, such as
debtfreeafterall.com
Article Written by Naz
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