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What’s the Difference Between Chapters 7 and 13 Bankruptcy
What’s the Difference Between Chapters 7 and 13 Bankruptcy?
There are several different chapters of bankruptcy. However, if you are
just an ordinary person rather than a municipality, a business, a family
farmer, or fisherman, there are generally two chapters that apply to you:
Chapter 7 and Chapter 13.
Chapter 13 is often referred to as a repayment plan bankruptcy. The idea
in a Chapter 13 is that you file a bankruptcy petition and then you prepare
a repayment plan where you repay a portion of your debts over a period
of three to five years. You do that by making monthly payments. The amount
of your payment is dependent on your income and some other factors. If
you make all your payments during that three to five-year period, whatever
you still owe at the end of that period gets discharged, meaning you do
not owe it anymore.
Chapter 7 is often referred to as a liquidation bankruptcy. In a Chapter
7, you generally do not make payments. Instead, it is possible for the
trustee, who gets appointed to represent your creditors, to seize any
non-exempt assets that you have, sell those off, and use that money to
pay your creditors.
Non-exempt is the key part of that. Most property that people own is exempt,
meaning that the trustee is not able to take it. In most cases, parties
do not have enough non-exempt property for the trustee to bother seizing
anything. However, in a Chapter 7, it is a possibility that some property
will be seized, sold off, and used to pay your creditors a portion of
what is owed to them. Unlike a Chapter 13 that takes three to five years,
a Chapter 7 only takes four to five months. A Chapter 7 is generally considerably cheaper.
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