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Chapter 7 vs. Chapter 13 Bankruptcy
- Bankruptcy Type: Chapter 7 bankruptcy is often referred to as a ”straight bankruptcy” or “liquidation bankruptcy”. Chapter 13 bankruptcy is often referred to as “reorganization bankruptcy”.
- Bankruptcy Eligibility: Chapter 7 bankruptcy may be filed by indebted individuals or businesses. Chapter 13 bankruptcy is a debt relief option available only to indebted individuals. A business cannot file Chapter 13.
- Trustee Responsibilities: Within a Chapter 7 bankruptcy, a Chapter 7 bankruptcy trustee determines and facilitates the selling of assets before providing creditors with the proceeds to pay down debts. A Chapter 13 bankruptcy trustee assists in the creation and proposal of a court-approved monthly debt repayment plan.
- Property Protection: Individuals filing Chapter 7 bankruptcy are permitted to protect certain property from liquidation by way of state-level exemption laws. For Chapter 13 bankruptcy, all assets are generally kept as long as the court-approved debt repayment plan meets the liquidation requirement.
- Bankruptcy Length:The typical length of the Chapter 7 bankruptcy process, considered a more immediate debt relief option, is 4-5 months. The Chapter 13 bankruptcy process, considered to be more of a debtor rehabilitation program, generally takes between three and five years to complete.
- Bankruptcy Frequency: Chapter 7 bankruptcy is the nation’s most common form of bankruptcy.
- Bankruptcy Complexity: Chapter 7 bankruptcy has gotten significantly more complicated since the enactment of the BAPCPA Bankruptcy Act (2005). Additionally, the Chapter 13 bankruptcy process is generally considered to be more complicated than that of Chapter 7 bankruptcy.
- Bankruptcy Success: Statistically speaking, filing for bankruptcy without the assistance of a bankruptcy lawyer severely increases the chances that a Chapter 7 or Chapter 13 bankruptcy case will be dismissed within the first couple months of the respective bankruptcy processes.
Comparision of Chapter 7 vs. Chapter 13 Bankruptcy
|Chapter 13 Bankruptcy||Chapter 7 Bankruptcy|
|In Chapter 13 bankruptcy you repay your creditors through a Chapter 13 repayment plan.||A Chapter 7 bankruptcy will discharge most types of unsecured debt. The trustee will try to sell any significant nonexempt property in order to repay your creditors.|
|Time Frame: The Chapter 13 payment plan lasts three or five years.||Time Frame: A typical Chapter 7 bankruptcy case takes four to five months to complete.|
|Property: No property is liquidated under a Chapter 13 bankruptcy.||Property: Most people who file for Chapter 7 keep all or most of their property. Petitioners with significant equity or assets that are not exempt by law could lose them to satisfy some debts.|
|Your Income: Chapter 13 requires a regular income for the monthly payment. if you cannot afford your payment then your case will dismiss.||Your Income: If you make too much money you will not qualify for Chapter 7 and will have to look at filng for Chapter 13 to repay some or all of your debt.|
|Homeowners/Foreclosures: Chapter 13 can stop a foreclosure and you can make up past due mortgage payments through your repayment plan.||Homeowners/Foreclosures: Chapter 7 can temporarily stop foreclosure, but unless you can get current on your mortgage, the foreclosure will eventually continue.|
|Car Repossession: Chapter 13 can stop a car repossession and you can restructure your loan through your repayment plan.||Car Repossession: Chapter 7 can stop a car repossession temporarily but if you cannot get current on your car shortly after filing you will have to surrender the car. If you current on your car and maintain your payments you can retain your car.|
|Eligibility: Chapter 13 has no income requirement, but unsecured debt must be below $419,275 and secured debt below $1,257,850||Eligibility: Chapter 7 is available to those whose income is less than the median of their state, or those who can pass the means test.|