If you’re considering bankruptcy, then you’re probably curious as to the difference between Chapter 7 and Chapter 13. It’s important to know what each of these is, so you’ll know what to file. Your attorney will probably advise you of what he or she thinks is best for your situation, but to really be sure and know you’re doing the right thing for you, it’s essential that you know the basics. Knowledge is power, after all!
The main difference between Chapter 7 and 13 bankruptcies is how existing debts are handled. In Chapter 7 bankruptcy, most, if not all, of your debts are usually discharged. This means you do not legally owe the debts anymore, and your creditors can no longer come after you for payments. This is often accomplished without you having to sell any of your assets, as the majority of people filing for Chapter 7 bankruptcy don’t have any assets to sell. You won’t be forced to sell your house or car, either….especially if your car is your ONLY car. Chapter 7 is a good option for someone who is considering filing for personal bankruptcy based on excessive consumer credit debt.
Chapter 13 bankruptcy is different. It’s often referred to as a wage earners plan, and its main purpose is to create an equitable and reasonable repayment play for you to pay back your creditors. This type of bankruptcy is used by people who believe they can eventually pay off their debts, but not in a timely manner.
With Chapter 13, debtors are allowed to make structured payments in installments to creditors over a period of 3 to 5 years. Once the process is in motion, creditors are not allowed to start or pursue collection efforts against the debtor. In no case can the time of repayment be more than 5 years. This type of bankruptcy is most commonly used by people who are self-employed or operating unincorporated businesses. It is strictly for individual debtors, as corporations and partnerships are not eligible for Chapter 13. Also, the amount of both unsecured and secured debts being included in the bankruptcy must be within certain amounts set by statute.
The differences between Chapter 7 and 13 bankruptcies are pretty big, so it’s important to know which one is right for your situation. Despite being a financial setback, however, bankruptcy can ultimately give you a new financial life and help you restore your credit. If you’re thinking of filing, consult a qualified bankruptcy attorney for help and advice. It could be the best financial move you’ve ever made.
This is the first installment in our bankruptcy series. Be sure to check back for updates…