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The differences between Chapter 7 and Chapter 13 bankruptcy

| May 20, 2014 | Personal Bankruptcy

Some Arkansas residents may not know that there are different types of bankruptcy that an individual can go through. The two most common, though, are Chapter 7 and Chapter 13. These bankruptcies allow the filer the chance to get out of debt, but the way in which that may be achieved depends on the bankruptcy.

Through Chapter 7, the filer can eliminate — or “discharge” — their debts. This comes at a price, as some of your assets will be liquidated. However, there are certain assets that are protected from being liquidated, allowing you to maintain critical aspects of your life. It is also important to note that your income plays a determining role in whether you qualify for Chapter 7. If you earn too much, you cannot file Chapter 7.

That’s where a Chapter 13 bankruptcy filing can come in. Chapter 13 allows the filer to protect certain other assets that may not be protected in Chapter 7, while also allowing the filer to go through a debt restructuring process that helps them pay off some or all of their debt.

Either filing is going to affect your credit score — there’s no getting around that. But a Chapter 7 filing will stay on your credit report for longer (10 years) in comparison to a Chapter 13 filing (seven years). Although the credit score hit will certainly hurt, a bankruptcy could be better for you than a debt settlement. It all depends on the specifics of the case, though. Every situation is unique, and some people may be better off going with a debt settlement.

Source: FOX Business, “Debt Settlement vs. Bankruptcy: Which is Worse for Credit Score?,” Jane McNamara,, April 23, 2014