Difference Between Chapter 7 and Chapter 13

  • Filing for Bankruptcy

Difference Between Chapter 7 and Chapter 13

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People who can no longer pay their debts are offered help in the form of bankruptcy. They can either settle their debts by liquidating their assets or repaying the creditors through a repayment plan. The former takes place in Chapter 7 bankruptcy cases, while the latter occurs in chapter 13. Dallas based bankruptcy law firm Recovery Law Group says, the chapter of bankruptcy you file under depends on your income, assets, debts and your ultimate financial goal.

Chapter 7 bankruptcy

  • This is one of the most common chapters of bankruptcy file in the US. Individuals, married couples as well as companies can file for bankruptcy under Chapter 7. This chapter can help erase all unsecured debts like credit card bills, medical bills, and personal loans.
  • In order to qualify for this chapter, your disposable income should be very less or none. People who earn a lot of money have the option of filing for Chapter 13 bankruptcy.
  • Only those people whose family income is less than the state median for a household of the same number of family members can file for this chapter. If your income is just above the state median, you need to pass the means test to qualify for this bankruptcy chapter.
  • Bankruptcy trustee takes charge of the proceedings. They are responsible for selling the non-exempt property and distribute the proceedings among creditors.
  • Exemptions are provided to protect the debtor’s assets. These exemptions include homestead exemption (for residential property up to specified dollar amount), personal property exemption (art, jewelry, furniture, electronics, etc.), educational savings, retirement funds, health aids, medical savings accounts, etc.

Chapter 13 bankruptcy

  • Debtors with a steady source of income can opt for this bankruptcy chapter. Their disposable income (income remaining after deducting all essential expenses) is used to create a repayment plan through which the creditors are paid over a period of 3-5 years.
  • People who wish to keep all their assets (even non-exempt property) should opt for this bankruptcy chapter to avoid liquidation of assets.
  • People who are behind mortgage payments and wish to avoid foreclosure can catch up on their past arrearage through this bankruptcy chapter. Though automatic stay puts foreclosure for hold in chapter 7 also, it can be for 120 days only.

You need to propose a repayment plan in the case of chapter 13. For this, you need the assistance of experienced bankruptcy lawyers. You can call 888-297-6023 to speak with attorneys regarding this.


2019-10-30T11:04:41+00:00