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Key Differences Between Chapters 7 and 13 Bankruptcy Filings

Published on April 2nd, 2020

Bankruptcy Lawyer

When a person finds themselves deep in a pit of debt, there may not appear to be any end. Many people do not think of how much bankruptcy can help. One reason for this is there is a general lack of knowledge about the bankruptcy process and how it works. Find out more about Chapters 7 and 13 and the differences between the two.

Chapter 7 Liquidates Certain Assets

People who know something about bankruptcy may think only of a process that involves everything tangible to pay debt. While this is not completely accurate, it is the basis of Chapter 7 bankruptcy. This type of filing involves selling off some property and using the cash to pay down debt. If something is backed by collateral, like cars or boats, creditors may opt to repossess the item and excuse part of the outstanding loan. A home may be included in this process if it has value, and the mortgage is not getting paid. However, most states allow people to keep their primary residence and vehicle. Debts not paid are discharged.

Chapter 13 Creates a Payment Plan

While Chapter 7 liquidates to pay, Chapter 13 builds a payment plan. The process involves the trustee meeting with creditors, settling on a total sum to resolve the majority of them, and then trying to get payments manageable. The plan may go from three to five years, depending on much money the creditor owes. At the end of the prescribed payment period, any remaining debts are discharged.

Chapter 7 Is Income-Contingent

People in debt do not always get to pick the chapter under which they file. There are some limits and qualifications that make filing in one or the other impossible. Chapter 7, for instance, has an income requirement. You may not make over a specific amount to file under Chapter 7 laws.

Chapter 13 Takes Years

The quicker way to get through bankruptcy is to file Chapter 7 and sell everything to pay down debt. However, if someone does not qualify for a Chapter 7 filing, then they may be in for a more extended resolution. Chapter 13 is a slower process because the payment plan runs anywhere from three to five years. The threshold is income-contingent, so how much you make determines how long you pay.

Remember, not everything can be discharged in bankruptcy. Things like federal student loans are part of either bankruptcy proceedings. It is a good idea to speak to a bankruptcy lawyer in Tampa, FL for more guidance in the matter.

 


 

Thanks to The Law Office of Michael A. Ziegler, P.L. for their insight into bankruptcy law and the differences between chapter 7 and chapter 13.

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