What's The Difference Between Filing Chapter 7 and Chapter 13?

The difference between filing chapter 7 and chapter 13 depends on whether people are trying to eliminate or reduce secured and unsecured debt. However, there are some common factors in both bankruptcy options. For instance, both chapters of bankruptcy offer an automatic stay. This stay prohibits, or stops, creditors from filing lawsuits, garnishing wages or taking homes. Nevertheless, the difference between chapter 7 and chapter 13 is based on individuals’ ability to repay or their secured and unsecured debts.

Difference between Chapter 7 and 13 Is Repayment

Chapter 7, also called liquidation bankruptcy, is used when people are looking to eliminate their debts. In other words, the U.S. Bankruptcy Court cancels many or all of individuals’ debts. However, chapter 13, or wage earner’s bankruptcy, is for people with regular income and consists of repaying creditors in monthly installments. The payments are sent to bankruptcy trustees and then distributed to creditors.

There Are Different Timeframes of Discharge Depending on Bankruptcy Options

People who file for chapter 7 have a shorter amount of time to wait before their unsecured and secured debt is discharged, or eliminated. The process typically takes four to six months to complete. However, since chapter 13 takes repaying creditors, the process takes longer. Thus, the wage earner’s bankruptcy process takes approximately 36 to 60 months to complete.

Chapter 7 May Require Individuals to Give Up Their Property

Chapter 7 is the only bankruptcy option which requires people to give bankruptcy trustees personal items considered non-exempt—if they have any. The trustees sell the items then provide creditors with any profits.

Chapter 13 Is For Saving Secured Property

Although people can repay unsecured and secured property, the can only save secured property under chapter 13. For example, people who trying to save their homes from foreclosure the automatic stay provides a way to do so. Once the chapter 13 bankruptcy cases are filed, creditors can’t foreclose. Although an automatic stay is provided under chapter 7, it doesn’t protect homes from foreclosure.

People Should Contact Bankruptcy Attorneys to Find Out Which Chapter Is Best For Them

Bankruptcy attorneys are experienced in determining which type of bankruptcy is right for people and their particular financial circumstances. Also, the attorneys can explain what items are considered exempt under chapter 7. More importantly, bankruptcy attorneys can file the necessary paperwork with the Court.

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