Once debt begins to spiral out of control, it can become increasingly difficult to get a handle on your finances, and if you are among the many Virginia residents facing mounting debt, you may be considering filing for bankruptcy. Most people who file for personal bankruptcies do so either through a Chapter 7 or a Chapter 13 filing, but there are some important differences between the two types.
Per the American Bar Association, a Chapter 7 bankruptcy involves, in simple terms, liquidating your assets, while a Chapter 13 bankruptcy involves restructuring them to make them more manageable. Typically, should you decide to move forward with a Chapter 7 filing, you will need to surrender any assets you have that are not “exempt.”
A Chapter 13 bankruptcy, meanwhile, involves you coming up with a payment plan to cover your expenses based on how much “disposable income” you have on hand. In most cases, Chapter 13 bankruptcies involve repaying at least a portion of your debts over a period that lasts somewhere between three and five years.
While many people who file for bankruptcy wish to do so through a Chapter 7 filing, this is not always an available option. Instead, those hoping to file for Chapter 7 bankruptcy must first pass a “means test” in order to qualify. The means test takes your household income and compares it against the median income in Virginia, and if you have too much income available to you, you will typically fail the means test and not qualify for a Chapter 7 filing.
This information about the key differences between Chapter 7 and Chapter 13 bankruptcies is meant solely for educational purposes and is not a replacement for legal advice.