What is the difference between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy?
One of the most basic differences between filing Chapter 7 bankruptcy and Chapter 13 is whether or not the individual has the means to eventually pay off their debts or not. While both options help an individual recover from debt, the two chapters can be summarized by their method of doing so; Chapter 7 can be seen as liquidation, and Chapter 13 seen as reorganization.
Chapter 7 – Liquidation
An individual or business entity who qualifies for Chapter 7 bankruptcy will be cleared of their outstanding debt, such as medical bills or credit card payments, with no expectation to ever pay them back. In order to facilitate this, a trustee is appointed to begin selling all the individuals nonexempt property until all creditors are repaid. Debt can generally be cleared in as few as 4 months.
Who should file under chapter 7?
People with low income with few or no assets, or whose debt exceeds the value of their assets.
Chapter 13 – Reorganization
Though filing for bankruptcy under Chapter 13 can take substantially longer for an individual to be cleared of their debt, it’s generally seen as more appealing to debtors. Chapter 13 offers the individual an opportunity to not lose any of their assets while their debt is repaid. Though the debtor will have to eventually pay at least the amount equal to all their nonexempt assets, Chapter 13 offers these individuals a revised payment plan in order to make becoming debt-free more attainable. The full amount of what will be owed is dependent on the individual’s income, expenses, and type of debt.
Who should file under chapter 13?
People with a steady income, capable of repaying portions of their debt over an extended period of time (typically three to five years). Examples include individuals wanting to avoid foreclosure or repossession.
For more information, and to hear our experienced bankruptcy attorneys discuss the benefits and drawbacks of filing for bankruptcy check out our Bankruptcy Law TV playlist on our Youtube channel.
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