Most people in the Tacoma area have never gone through bankruptcy protection before. While there’s a good chance you know someone who has, you probably know few details about their experience, such as whether they filed for Chapter 7 or Chapter 13 bankruptcy.
If you are now thinking about bankruptcy for yourself, it’s important that you understand the difference between these forms of bankruptcy. Chapter 7 and Chapter 13 bankruptcy are the most popular forms of personal bankruptcy protection. Both help people get out of debt, but they work in different ways.
Chapter 7 bankruptcy
Also known as “liquidation bankruptcy,” Chapter 7 bankruptcy is the most commonly used filing. It works by reducing or eliminating most forms of debt, such as credit card debt and medical bills. In exchange, the debtor sells most of their assets (with some important exceptions), and their creditors accept the proceeds. To qualify for Chapter 7, your income must fall below a certain level. This is known as the means test. For example, in Washington State, households of four individuals that file after May 1 of this year cannot have a monthly income of more than $8,956.75 or an annual income of $107,481.
Chapter 13 bankruptcy
Chapter 13 bankruptcy is sometimes called “reorganization bankruptcy.” Instead of eliminating your debt and requiring you to sell your assets, you and your creditors agree to a monthly repayment plan that typically lasts three to five years. Thus, you are more likely to keep your home, your vehicle and other valuable assets. Chapter 13 bankruptcy tends to work better for those with a steady and significant source of income.
Your choice of bankruptcy protection should fit your family’s financial situation and particular needs. To know for sure what the best way for you to deal with your debt is, you should consider speaking with a bankruptcy attorney.