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Understanding the differences between Chapter 7 and Chapter 13


Illinois residents who are struggling with credit card debt may be interested in information on the types of personal bankruptcy available to them. Each type has its own particular operation and rules that must be followed in order to gain the debt relief benefits of bankruptcy.

While filing for bankruptcy may be a way out from under the financial challenges of overwhelming debt, the choice between Chapter 7 and Chapter 13 may depend on the person's particular circumstances. Each type operates differently, with Chapter 7 allowing a person to surrender certain assets in exchange for discharge of their debts. Chapter 13, on the other hand, involves a three to five-year payment plan that allows the debtor to keep the assets and discharge the debt at the end of the plan.

One of the major differences has to do with the person's income. For Chapter 7, the debtor's income must meet a certain test and be low enough to qualify. Chapter 13, on the other hand, depends on the amount of the debt rather than the debtor's income. Both types of bankruptcy have limitations regarding prior bankruptcies, with a Chapter 7 not being allowed if there was no other completed Chapter 7 in the past eight years. Chapter 13 bankruptcy, however, will not be allowed if there was another Chapter 13 within the prior two years or a different type of bankruptcy in the previous four years.

Deciding on the proper type of personal bankruptcy to file or whether to file at all can be difficult without the professional aid of an attorney. The attorney may be able to examine the person's financial situation and recommend the best course of action.