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What are two common types of bankruptcy available to individuals drowning in debt? If you’re struggling with overwhelming financial obligations, understanding your legal options can feel confusing and stressful. Chapter 7 bankruptcy and Chapter 13 bankruptcy are the two primary debt relief solutions designed to help you regain control of your finances. This guide explains how each bankruptcy type works, who qualifies, and which option might provide the fresh start you need. Whether you’re facing medical bills, credit card debt, or other financial challenges, knowing the difference between these two bankruptcy chapters empowers you to make informed decisions about your financial future.
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” eliminates most unsecured debts without requiring monthly payments. According to the U.S. Courts, approximately 65% of consumer bankruptcy filings are Chapter 7 cases. This bankruptcy type typically takes 3-4 months from filing to discharge.
To qualify for Chapter 7, you must pass the means test, which compares your household income to your state’s median income levels. If your income falls below the median, you automatically qualify. The U.S. Trustee Program administers these income requirements to ensure fair access to debt relief.
Chapter 7 discharges most unsecured debts including credit card balances, medical bills, personal loans, and utility bills. Many people eliminate $20,000 to $100,000 in debt through this process. While you may need to surrender non-exempt assets, most filers keep their home, car, and personal belongings through state and federal exemptions.
The bankruptcy process begins when you file your petition with the bankruptcy court. Within 30-40 days, you’ll attend a meeting of creditors where a bankruptcy trustee reviews your financial situation. Most Chapter 7 cases receive discharge within 90-120 days, providing remarkably fast financial relief compared to other debt solutions.
Chapter 13 bankruptcy creates a court-approved repayment plan lasting 3-5 years, allowing you to keep valuable assets while catching up on secured debts. The Internal Revenue Service recognizes Chapter 13 as a debt reorganization tool that can include tax debts in your repayment structure.
Unlike Chapter 7, Chapter 13 doesn’t require liquidating assets. Instead, you make monthly payments to a bankruptcy trustee who distributes funds to creditors according to your court-approved plan. This option works well for people with regular income who want to save their home from foreclosure or car from repossession.
Chapter 13 serves individuals earning steady income who don’t qualify for Chapter 7 due to higher earnings, or those who want to protect valuable assets like home equity. You can include secured debt arrears—such as mortgage or car loan payments—in your repayment plan, spreading catch-up payments over three to five years.
Chapter 13 typically discharges remaining unsecured debt balances after plan completion. If you owe $50,000 in credit card debt but your plan only requires $15,000 in repayment over five years, the remaining $35,000 gets discharged. Your payment amount depends on your disposable income and asset values.
Understanding what are two common types of bankruptcy means recognizing which option fits your specific financial situation. Chapter 7 works best for individuals with limited income and few valuable assets, providing quick debt elimination. Chapter 13 suits those with regular income who need time to catch up on secured debts or want to protect assets that exceed exemption limits.
Consider Chapter 7 if you want fast debt relief and don’t have significant non-exempt property. This bankruptcy chapter offers the quickest path to financial freedom, typically completing in four months or less.
Choose Chapter 13 if you’re behind on mortgage or car payments, earn income above the means test threshold, or have valuable assets you want to protect. The repayment plan structure provides breathing room to reorganize your finances while maintaining ownership of important property.
Both bankruptcy types stop wage garnishments, creditor harassment, and collection lawsuits through the automatic stay—a powerful legal protection that begins immediately upon filing. A qualified bankruptcy attorney can analyze your income, debts, and assets to recommend the best option for your situation. Many individuals qualify for both chapters, making professional guidance essential for optimal results.
Don’t let overwhelming debt control your life another day. Understanding what are two common types of bankruptcy is your first step toward financial freedom, but determining which option works best requires professional legal analysis. Our experienced bankruptcy attorneys provide free, confidential evaluations to assess your situation and recommend the most effective debt relief strategy. Get started today at bankruptcy attorneys and discover how Chapter 7 or Chapter 13 can help you achieve the fresh start you deserve.
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Chapter 7 and Chapter 13 are the two most common bankruptcy types for individuals. Chapter 7 eliminates unsecured debts through liquidation, while Chapter 13 creates a repayment plan.
Chapter 7 bankruptcy typically takes 3-4 months from filing to discharge. Most people receive their debt discharge within 90-120 days, making it the fastest bankruptcy option.
Yes, Chapter 13 allows you to keep your house by including mortgage arrears in your repayment plan. You’ll catch up on missed payments over 3-5 years while making current mortgage payments.
Student loans, recent tax debts, child support, alimony, and debts from fraud typically cannot be discharged. However, Chapter 13 helps manage these obligations through structured repayment.
Yes, you can qualify for Chapter 7 with employment if your income falls below your state’s median income level. The means test determines eligibility based on household size and income.
Bankruptcy Options Explained: What Are Two Common Types of Bankruptcy What are two common types of bankruptcy available to individuals
