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The difference between Chapter 7 and Chapter 13 bankruptcy

There are several different forms of bankruptcy, but for most individuals considering bankruptcy protection, the choice comes down to Chapter 7 or Chapter 13 bankruptcy. Obviously, these do not work the same way. What is the difference?

Chapter 7 Liquidation

One way to think of Chapter 7 is as liquidation, or starting over after getting overwhelmed by debt. The typical filer for Chapter 7 has serious problems with credit card debt, wage garnishments or judgments against them.

To qualify for Chapter 7 in Georgia, your household income must be below average for a family of the same size in the state. As of April 2011, for example, the average annual income for a family of two in Georgia was $53,790. If your household income is above average, you must pass a “means test” to qualify for Chapter 7. One of the advantages of Chapter 7 bankruptcy is that it often allows you to keep your home, car and similar property.

Chapter 13 Reorganization

This version of bankruptcy protection makes the most sense when your primary issue is falling behind on your mortgage, or if your income is too high, or the equity in your home is too much, to qualify for Chapter 7. It is a way to stop foreclosure or repossession of your car.

What these two versions of bankruptcy have in common is that they can give people struggling with debt a fresh start. Filing for bankruptcy can be a complex process, but a knowledgeable bankruptcy attorney can be your guide to financial independence.

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