The Main Differences between Chapters 7 and 13 Bankruptcy

When I am called upon to design a website, I have to learn as much about the company as possible. Most of the time, the site owners will ask me to recommend content providers that will fill it with the right information so that it meets the company’s goals. While doing that, I will learn as much as possible about the topic so I can explain it to my pool of content providers.

Some information is usually so interesting that I will opt to write the content myself, such as the facts I learned on the two main chapters of bankruptcy.

Chapter 7 Bankruptcy

This chapter caters to those debtors with unsecured debts and little to no assets. Medical bills and credit card debts will be categorized here and they will be completely wiped off so that the debtor does not have to think of them ever again.

To qualify for this chapter, you have to take the Means test that proves your current income cannot pay off your debts under a flexible repayment plan.

Upon filing for Chapter 7, the court issues an automatic stay that prevents your creditors from making any attempts on collection. They cannot call, text, or email as long as the stay is in place. The court will appoint a trustee that will sell your nonexempt property and distribute the proceeds among your creditors. Non-exempt property is that which is not protected by the federal or state law.

Chapter 7 allows for the sale of assets if you have any to pay off creditors and it also wipes off all your dischargeable obligations. You must pass the Means Test for you to qualify to file under this chapter. The order is lifted in 3 to 4 months.

Chapter 13 Bankruptcy

Chapter 13 is less of a liquidation process and more of reorganization. It is designed to capture more aspects such as enable a debtor to catch up on missed mortgage payments and so it is preferred by many to Chapter 7.

While you don’t have to sell your assets on this chapter, you will need to pay your creditors an amount equal to the value of your non-exempt property in a repayment plan spread over five years. The amount you pay back depends on your income and expenses – as determined by the Means Test. You will pay your debt off your income unless you decide to sell your non-exempt property.

Chapter 13 is mostly for debtors who: have missed mortgage payments but want to catch up so they don’t lose their home, have non-dischargeable obligations that they want to catch up on through a flexible repayment period, and do not qualify for Chapter 7 as their income is too much, but they still need protection from creditors.

The Chapter 13 repayment plan is spread over 5 years and in this time, the debtor has an obligation towards their creditors to make monthly payments that will offset what they owe. Only individuals can file for this chapter.

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