• 11
  • October
    2011

In the world of personal bankruptcy, Chapter 7 and Chapter 13 are quite different. The general terms given for each chapter make this clear. While Chapter 13 is about "reorganization," Chapter 13 is about "liquidation." The difference between these two forms of bankruptcy is that in Chapter 13, you will keep your property while paying your debts over a three to five year period. In Chapter 7, you will sell your "nonexempt property" and distribute the proceeds to creditors.

As we have noted previously on this blog, Chapter 7 is the more popular of the bankruptcy forms. The possibility of having a fresh start is, no doubt, attractive to many troubled debtors. But not everybody qualifies for Chapter 7, or Chapter 13 for that matter. So how does one qualify for these chapters? Let's take a look.

Eligibility for Chapter 13 is fairly easy. As long as your unsecured debts are less than $360,475 and your secured debts are less than $1,081,400, you can qualify. There are other qualifications as well.

You cannot file if a previous petition was dismissed in the last 180 because of a failure to appear in court or cooperate with court orders or if your petition was voluntarily dismissed after creditors tried to seek relief from the bankruptcy court to recover property on which they hold liens. You must also have received credit counseling within 180 days of filing, or you cannot qualify. And if a debt management plan was set up during that counseling, it must be filed with the court.

These requirements are subject to exceptions in emergency situations or where there aren't any approved credit counseling agencies available to the filer.

Unlike Chapter 13, you may be able to walk away from a good amount of debt in Chapter 7 bankruptcy, so it should be surprising that qualification for chapter 7 is more difficult. In our next post, we'll take a look at the qualification rules for Chapter 7 bankruptcy.

Source: Online: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.aspx. United States Courts website; gives an overview of the Chapter 13 bankruptcy process.