Chapter 7 bankruptcy, also known as "liquidation," is a legal process by which most unsecured debts can be discharged, or wiped out. Chapter 7 bankruptcy is known as liquidation because any non-exempt assets the debtor has may be liquidated (sold) by the trustee for the benefit of creditors. Many Chapter 7 bankruptcy debtors have no non-exempt assets, and so there is no liquidation, and unsecured debts are simply discharged. There are, however, certain unsecured debts that are not dischargeable in Chapter 7 bankruptcy.
Chapter 13 bankruptcy is a full or partial repayment plan administered by the bankruptcy court. The debtor submits a plan for approval and, when a plan is approved, makes monthly payments to the bankruptcy trustee. The trustee makes payments to creditors in accordance with the terms of the plan. The repayment period may be from 3-5 years. At the end of the repayment period, if all payments have been made according to the plan, remaining unsecured, dischargeable debt may be discharged.
IS FILING CHAPTER 7 BANKRUPTCY RIGHT FOR ME?
To file for Chapter 7 bankruptcy, you must qualify under the Chapter 7 means test. The means test first compares your income to the median income in New York. If your income is lower than the median income in New York, you can file for Chapter 7 bankruptcy. However, if your income is greater than the median income in New York, other calculations regarding your income and allowable expenses are required to determine whether or not you can file for Chapter 7 bankruptcy.
IS FILING CHAPTER 13 BANKRUPTCY RIGHT FOR ME?
In one sense, it's easier to qualify for Chapter 13 bankruptcy than for Chapter 7 bankruptcy. There's no means test for Chapter 13 bankruptcy, and some debtors who cannot qualify for Chapter 7 bankruptcy opt to file under Chapter 13 bankruptcy instead. However, Chapter 13 bankruptcy requires a regular income that will allow you to create a budget and make predictable and reliable payments to the trustee.
IS CHAPTER 7 OR CHAPTER 13 BANKRUPTCY A BETTER SOLUTION?
The answer to this question depends on your specific circumstances. Generally speaking, Chapter 7 bankruptcy is better for people who have a lot of unsecured debts, like credit card debt and medical bills. If you don't have much property, your income is low, and most of your debts are unsecured, you might want to consider Chapter 7 bankruptcy. Chapter 13 bankruptcy, on the other hand, tends to be a better option for those who have regular income and non-exempt property they'd like to keep.