Chapter 13 vs. Chapter 7 Bankruptcy: Benefits for Different Situations

It’s imperative for a debtor to know how the differences between a Chapter 13 vs. a Chapter 7 bankruptcy before filing. If a debtor does not understand the differences and how those differences might affect him, it could have long term negative consequences.

Basic Differences between a Chapter 7 and a Chapter 13 Bankruptcy

There are several very basic differences between a Chapter 7 and a Chapter 13 bankruptcy.

Chapter 7 is a debt liquidation plan which results in the discharge of most of a debtor’s unsecured debts. A Chapter 13 bankruptcy, on the other hand, allows a debtor to consolidate or restructure his debts and pay them out over a three to five year period.
A Chapter 7 debtor typically receives a discharge about three months from the date his bankruptcy petition is filed. A Chapter 13 debtor will not receive a discharge until he completes his Chapter 13 plan, usually in three to five years.
The filing fee in a Chapter 7 case is $299, while the filing fee in a Chapter 13 case is $284.

Procedural Differences

A Chapter 7 case is procedurally different from a Chapter 13 case in a number of ways.

A Chapter 7 debtor is required only to attend the Meeting of Creditors. A Chapter 13 debtor must attend both the Meeting of Creditors and the Confirmation Hearing.
A Chapter 13 debtor must file a Chapter 13 plan with the bankruptcy court. There is no corresponding or similar requirement to file a Chapter 7 case.
Anyone with regular income with unsecured debts of less than $336,900 and secured debts of less than $1,015,650 may file a Chapter 13 Bankruptcy. On the other hand, in order to file a Chapter 7 case, a debtor must pass the Median Income and Means Tests

Differences in the Benefits

A Chapter 7 case is best for any debtor with little or no assets or whose assets have less equity than the value of the available exemptions. A Chapter 7 bankruptcy is ideal for a homeowner who wishes to surrender real property and eliminate the possibility of a deficiency judgment.

Chapter 13 bankruptcy is ideal for any qualified debtor who wishes to save property from foreclosure or repossession. A Chapter 13 bankruptcy allows a debtor to pay a mortgage delinquency over time rather than in a lump sum. Moreover, it allows a homeowner who is underwater with a second mortgage to treat that mortgage as an unsecured debt.

Getting Legal Help

Before filing bankruptcy, you should speak with an experienced bankruptcy attorney about the differences between Chapter 7 and Chapter 13. A bankruptcy attorney will review the facts and circumstances surrounding your case in relation to your short and long term financial goals and will advise you whether filing Chapter 7 or Chapter 13 would be best for you.

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