Chapter 13 vs. Chapter 7: What are the Differences?

While some people may be a little disappointed if they have to file for bankruptcy, it is always helpful to try and view a bankruptcy filing as an opportunity for a fresh start. While this may be difficult in the beginning, it tends to get easier as one’s legal case progresses and solutions are found. Getting back on track financially starts with filing for the proper type of bankruptcy as it pertains to your unique financial situation.

The two most common types of bankruptcy that an individual may file for are Chapter 13 and Chapter 7. Understanding the differences between these two types will help you make an informed decision with the aid of an experienced bankruptcy attorney.

Chapter 7

Chapter 7 bankruptcy is also referred to as a liquidation bankruptcy that is open to both individuals and companies. In order for an individual to file for this form of bankruptcy, their disposable income must be beneath a certain level and pass something called a Means Test. There are a few benefits of filing for Chapter 7 bankruptcy, including that debtors are able to discharge almost all of their debts in a matter of months and receive a fresh start. On the other hand, the debtor typically has to sell almost all of their nonexempt property in order to pay back their creditors. This form of bankruptcy also does not provide any opportunity for the debtor to catch up on any missed payments.

Chapter 13

Chapter 13 bankruptcy is commonly referred to as a reorganization bankruptcy filing that is limited to individuals only. There is a limit to the amount of debt that someone can have if they are filing for this form of bankruptcy. This most important fact to note about Chapter 13 is that the court will not approve an individual for this form of bankruptcy filing unless they have a clear plan to repay the debt that they owe. These plans are typically spread out over the next three to five years.

There are several benefits to filing for this form of bankruptcy, including that the debtor will be allowed to keep all of their property and will be given the opportunity to show the court that they can catch up on any missed mortgage, car, or non-dischargeable debt payments. On the other hand, there are a few disadvantages to this form of bankruptcy as well. The debtor will have to make monthly payments on their debt and stay on track with their repayment plan. There are also fewer dischargeable debts in this form of bankruptcy.

Clearly, there are numerous differences between Chapter 13 and Chapter 7 bankruptcy that can make the legal waters of the bankruptcy process a challenge to navigate, particularly for people who don’t have experience in the legal field. For this reason, anyone thinking about filing for bankruptcy should consider hiring an experienced legal attorney for assistance. It may make the difference between a fresh start and a long, drawn-out process.

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