Chapters 7 and 13 of the United States Bankruptcy Code provide different ways to get bankruptcy relief. Before you file for bankruptcy, it is essential to understand how the process works for each chapter and what you should discuss with your San Diego bankruptcy lawyer before you begin bankruptcy proceedings.
How Chapter 7 Bankruptcy Works
Chapter 7 is also known as liquidation bankruptcy because some of your property will be sold to satisfy the debts of eligible creditors. Generally:
- You qualify for Chapter 7 bankruptcy if you pass the “means test.” Your current monthly income must be less than or equal to the median income for a family of your size in California and you must not have the disposable income necessary to repay your creditors.
- Your non-exempt property will be sold to satisfy your debts. For secured loans, such as a car loan or home mortgage, the creditor may take possession and ownership of the car, home, or other property that secured the loan.
- A Chapter 7 bankruptcy discharge happens quickly. A discharge usually happens in a matter of months.
How Chapter 13 Bankruptcy Works
Chapter 13 is also known as reorganization bankruptcy because you keep all of your property and pay your debtors according to a court-approved repayment plan. In a Chapter 13 bankruptcy:
- Your eligibility depends on your income and debts. To qualify for Chapter 13 bankruptcy relief, you must have enough disposable income to make regular payments on a repayment plan and your secured and unsecured debts must not exceed certain amounts.
- You keep your property. You keep your property and make regular monetary payments to your creditors.
- A Chapter 13 bankruptcy typically takes a few years. A chapter 13 bankruptcy is only discharged at the end of the repayment plan period, which is typically three to five years.
Bankruptcy Offers a Fresh Start
Before you file for bankruptcy, speak to an experienced lawyer about which type of bankruptcy is right for you. At San Diego Legacy Law, we will carefully review your situation and help you get financial relief. Contact us today to learn more.