Once you find yourself struggling to stay atop your bills and finances in California, you may start sorting through your options and wondering whether bankruptcy might help give you a fresh start. Consumer bankruptcies fall into two main categories: Chapter 7 bankruptcies and Chapter 13 bankruptcies.
According to Quicken Loans, there are some notable differences between the two types of consumer bankruptcy filings. Key differences include how they discharge your debts and how you determine whether you are eligible for them.
Chapter 7 bankruptcies
Sometimes called liquidation bankruptcies because they sometimes have you relinquish some of your assets to cover some of your debts, Chapter 7 bankruptcies are for consumers of limited means. For this reason, you must take a two-part means test to determine if you are eligible to discharge your debts through this method.
Chapter 13 bankruptcies
Sometimes called reorganization bankruptcies, Chapter 13 consumer bankruptcies require that you create a payment plan to pay back at least some part of your outstanding debts. If you are able to keep up with your agreed-upon payments and still pay your mortgage, you may be able to stay in your home with a Chapter 13 filing. To be eligible for a Chapter 13 bankruptcy, you must show that you have a steady income. You also need to meet certain limitations when it comes to how much secured and unsecured debt you have to qualify for a Chapter 13 filing.
If you hope to file for Chapter 7 but fail the bankruptcy means test, you have the option of waiting and retaking the test again once six months have passed.