Difference Between Chapter 7 And Chapter 13 Bankruptcy


Bankruptcy laws help people who can no longer pay their creditors get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation. The difference between chapter 7 and chapter 13 bankruptcy is mainly based on a individuals financial situation such as debt, recent income, and the value of assets.

Chapter 7 is the most popular type of bankruptcy for individuals. The debtor is able to discharge most of their unsecured debts within several months of the filing. Under a Chapter 7 bankruptcy the individual filing is mainly disposing of everything and starting over, coming out with a clean financial condition. However, chapter 7 bankruptcy laws allow for certain exemptions, such as keeping a primary residence, a vehicle and personal items. A debtor who has $100 or more each month not needed for living expenses may be required to file a chapter 13 bankruptcy.

A chapter 13 bankruptcy is mainly for those individuals who do not wish to liquidate their assets. Under this type of bankruptcy the debtor and trustee agree upon a proposal for a repayment plan. These plans usually require a debtor to repay only a percentage of what is actually owed, which can range from 30 cents to 50 cents on the dollar. The court then makes the decision on whether to accept or make changes to the proposed plan. The repayment plan is usually developed for a period of from three to five years.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era that requires people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within 180 days before they file. They also must complete a debtor education course to have their debts discharged.

If you are looking to file a chapter 7 or chapter 13 bankruptcy, it is recommended to discuss your financial situation with a bankruptcy lawyer or debt counselor to find more about the best options available to you.