Difference Between Chapter 7 and Chapter 13 Bankruptcy

Here are some of the major differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy. Read on to learn more.

Chapter 7 Bankruptcy

This is a liquidation bankruptcy that wipes out the majority of your unsecured debts including medical bills and credit cards without the necessity of a repayment plan. Certain income requirements must be met. if you earn in excess of theses requirements, you will need to look at Chapter 13 bankruptcy.

An order known as an “Automatic Stay” prevents the majority of creditors from pursuing collections. In additional bankruptcy trustee is appointed. They will review your papers and documents and our responsible for selling nonexempt property that will pay back your creditors. If you do not have any qualifying assets, the creditors will not receive anything. Chapter 7 bankruptcy is a good option when you have little to no assets and have a low income. it can also be advantageous to those whose discharged debt is greater than the value of the property sold.

Consider the following:

• Businesses and individual may file
• Your income must be under the limit for the Chapter 7 means test
• it takes three to four months to receive a discharge under normal circumstances
• The trustee has the authority to sell nonexempt property to satisfy creditors
• It does not allow the removal of insecure junior liens via lien stripping
• Tangible personal property can reduce the principal loan balance on secured debts
• There is no mechanism to make up missed payments to avoid repossession or foreclosure

Chapter 13 Bankruptcy

This is a reorganization bankruptcy for debtors with a regular source of income who have excess over every month and pay part of their outstanding debts as per a plan for repayment. Most filing Chapter 13 are in excess of the Chapter 7 financial requirements – but there are many advantages to Chapter 13 bankruptcy. In Chapter 13 bankruptcy you keep your property but you’ll have to pay creditors an amount equal to the value of your nonexempt property. When you need debt relief but do not qualify for Chapter 7 nd when you have debts that are non-dischargeable debts that you can pay off over a three to five year period you can without losing your property.

Consider the following

• Only individuals can file including sole proprietors
• Cannot have in excess of $419,275 of debt that is unsecured and $1,257,850 of debt that is secured
• Discharge only occurs on completion of payment plans
• Debtors Keep All Property But Must Pay Unsecured Creditors an Amount Equal to Value of Nonexempt Assets
• Allows the removal of unsecured junior liens from real property by means of lien stripping
• It allows for reducing the principal loan balance on debts that are secured

Source: https://www.nolo.com/legal-encyclopedia/what-is-the-difference-between-chapter-7-chapter-13-bankrutpcy.html