Differences Between a Chapter 7 and Chapter 13 Bankruptcy

There are a couple of options in regards to filing for a personal bankruptcy. Two of the most popular are chapter 7 and chapter 13. Although they are both a type of bankruptcy, there are some differences that are good to look into to find out which bankruptcy is the best choice for you.

Chapter 7 Bankruptcy
Chapter 7 is often known as a liquidation bankruptcy that is designed to eliminate your unsecured debts like your medial or credit card bills. In order to be eligible to file a chapter 7 bankruptcy you must have almost no disposable income. If it is determined that you have too much income through an income eligibility test, you will be asked to file a Chapter 13 bankruptcy instead. In a Chapter 7 bankruptcy you usually do not pay the creditors that are included in the bankruptcy petition unless the court states that liquidation is required of any asset you own that is nonexempt. After the liquidation the court appointed trustee distributes the proceeds to your creditors to partially satisfy any debts you might have. Any other debt that you might have left over after the liquidation is discharged and you are no longer held liable for it. If you happen to not have any assets that are considered nonexempt then your creditors will receive nothing. It has been our experience that most people that need to file bankruptcy will qualify for a Chapter 7 case and will not lose any assets as a part of their Chapter 7 bankruptcy case.

Chapter 13 Bankruptcy
Chapter 13 is known as a bankruptcy that is constructed for those who are in debt but have a regular flow of income and can pay at least some portion of their debts through some form of repayment plan. Those who make above the eligible income for Chapter 7 bankruptcy are asked to file Chapter 13. Though, some filers see it in their best interest to file Chapter 13 due to there being benefits over Chapter 7 such as the possibility of forestalling and often preventing the foreclosure on a home by giving the chance to become current on missed mortgage payments. A Chapter 13 bankruptcy does not obligate the liquidation of the filers nonexempt assets to pay the creditors, instead, the filers arranges a payback plan that lasts from 3 to five years. If the filer satisfies the repayment plan from the court then any debt left unpaid is typically discharged.

To simplify it a bit more, below is chart that compares general information for Chapter 7 and Chapter 13 bankruptcy cases.

Type of Bankruptcy
Chapter 7 – is known as a liquidation bankruptcy
Chapter 13 – is known as a reorganization bankruptcy

Who Can File?
For chapter 7 – individuals and business entities can apply
For Chapter 13 – Individuals only, this includes sole proprietors.

Restrictions on Eligibility
Chapter 7 – Must have little no disposable income and be able to pass the income eligibility test.
Chapter 13 – The filer cannot have more than $1,149,525 of secured debt or $383,175 of unsecured debt.

Property in Bankruptcy
Chapter 7 – The court appointed trustee can sell all nonexempt property to pay debts.
Chapter 13 – The filers can keep all their property buy must pay creditors and amount equal to the value of nonexempt assets.

Advantages
Chapter 7 – It allows the filers to quickly eliminate most debts and start anew.
Chapter 13 – It allows the filers to keep their property while becoming current on missed payments.

Disadvantages
Chapter 7 – The court appointed trustee has the ability to sell any assets that can be sold and there is no way to catch up on missed payments so it is possible that the filer can lose their home and their car.
Chapter 13 – The filer is required, by the court, to make payments to the trustee for a time span of 3 to 5 years. There is also the possibility that they may have to pay back a portion of any unsecured debts. If a payment is not made then the creditors have the possibility of obtaining permission from the court to foreclose the filer’s home, repossess their vehicle, or the bankruptcy case being dismissed.

If you are facing bankruptcy, please call our office at 770-609-1247 to discuss your case with one of our experienced Roswell Georgia bankruptcy attorneys.