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What is the difference between Chapter 7 and Chapter 13?

You have probably heard the term "bankruptcy" mostly in a negative context, but for many Ohio residents who have fallen into debt, bankruptcy becomes a saving grace: a chance to move forward from past mistakes and start over new.

According to FindLaw, individuals who fall severely into debt and wish to file bankruptcy will most commonly file either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 falls into the liquidation category of bankruptcy, which means that you may have to sell at least some of your assets in order to pay off your debts, although some assets are exempt. However, Chapter 13 bankruptcy falls into the category of reorganization, which means that, if you have a reliable source of income, the court will work with you to come up with a repayment plan based in part on the amount of debt that you owe and your income. You must then stick with the repayment plan by making on-time payments over a period of three to five years. 

In order to file either Chapter 7 or Chapter 13 bankruptcy, you must meet eligibility requirements. The most significant of these requirements again pertain to how much you make and/or how much you owe. For example, there are limits to the amount of money you can owe in order to file for Chapter 13 bankruptcy; you cannot owe more in unsecured debt than $394,725 , such as medical bills, nor can you owe over $1,184,200  in secured debt, such as a mortgage. On the other hand, eligibility for Chapter 7 bankruptcy depends largely (though not entirely) on your income. If you make enough money to qualify for a Chapter 13 repayment plan, you cannot file for Chapter 7 bankruptcy.

Chapter 7 and Chapter 13 bankruptcy each have benefits and drawbacks. Chapter 13 bankruptcy does not require you to sell off assets, so you are able to maintain ownership of your home or car. On the other hand, if you file Chapter 7 bankruptcy, you may lose some assets but gain forgiveness of some of your unsecured debt, such as credit card debt and certain loans.

The information in this article is not intended as legal advice but provided for educational purposes only.

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