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How do Chapter 7 and Chapter 13 bankruptcies differ?

If you count yourself among the many people across Ohio who are struggling with overwhelming debt, you may be giving some consideration to filing for bankruptcy. While many people consider filing for bankruptcy as a method of regaining control over their finances and lives, many people also understand very little about the process. For example, as someone filing for bankruptcy for the first time, you may have heard the terms “Chapter 7” and Chapter 13” thrown about, but you may not understand the difference between the two filings or understand which option might be more appropriate for you.

According to the American Bar Association, the primary difference between a Chapter 7 bankruptcy and a Chapter 13 is that a Chapter 7 bankruptcy involves more of a straight-up liquidation, while a Chapter 13 bankruptcy involves some type of repayment plan. Additionally, in a Chapter 7 bankruptcy, you typically have to surrender all assets that do not qualify as exempt, while, in a Chapter 13 filing, you may be able to keep certain assets, provided you work out – and stick to – a repayment plan.

While the vast majority of people who file for bankruptcy do so through a Chapter 7 filing, that does not necessarily mean that this would be the best option, or even an available option, for you. To file for Chapter 7, you must first pass a bankruptcy means test, which is largely income-based. If your income is too high, this can make you ineligible for a Chapter 7 filing, meaning you might be able to pursue a Chapter 13 bankruptcy, or wait a set period and then take the means test again.

You may, like many who file for bankruptcy, have concerns about whether you will be able to keep your home in doing so. While this depends on several factors, you may be able to do so through both bankruptcy methods, provided your situation meets certain guidelines and you stay on top of your mortgage payments.

This information is educational in nature and not a replacement for legal advice.


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