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If you are considering filing for bankruptcy, you probably have heard the terms Chapter 7 and Chapter 13, and you may be wondering which one is better for you. Chapters: Chapter 7 bankruptcy is known as liquidation bankruptcy and Chapter 13 bankruptcy is referred to as reorganization bankruptcy or the wage earner’s plan.

Qualifying – Due to laws that limit access to Chapter 7 bankruptcy to only certain consumers and require certain factors for those who file under Chapter 13, you might not always have a choice of which Chapter you can file under. This is because you need to meet the qualifying criteria. This is important to understand, as you can’t simply choose a Chapter and launch into the process.

Chapter 7 – Chapter 7 bankruptcy is intended to help debtors who face the most pressing debt concerns. It is typically reserved for consumers who have little to no assets, and who do not have the financial means to continue making monthly payments toward pre-existing debts. In order to qualify for Chapter 7, filers must pass a means test that compares their monthly income to the median monthly income in the state of Texas. Generally, if your average monthly income is less than or equal to the state’s median income, you will be eligible for Chapter 7. If it is more than the state median, you will need to determine if you have enough disposable income to make payments. If your disposable income is too high, you likely will not be able to choose Chapter 7.

Chapter 13 – Chapter 13 bankruptcy is a wage earner’s plan that reorganizes debt and allows filers to make consolidated monthly payments toward them over three to five years. As such, filers must have enough available funds and income to make payments over the course of their reorganization plan. Chapter 13 bankruptcy doesn’t mean you don’t get a discharge, that still happens at the end of a plan. It also enables filers to keep a certain property by paying back all or at least some of what they owe on the property with pre-existing debt.

Your choice in which Chapter of bankruptcy to file under depends on qualifying criteria, your personal situation, and your ultimate goals for the financial future. Understanding the unique benefits of each Chapter, as well as how they will impact you, can be a difficult matter, which is why it becomes important to work with experienced attorneys.

Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida. For more information, go to our web site or call 727-335-7151.