Difference Between Chapter 7 and Chapter 13 Bankruptcy
Introduction
For people who are in financial trouble, filing for bankruptcy can be a solution to their financial woes. In the United States, there are two commonly used types of bankruptcy – Chapter 7 and Chapter 13. While both types of bankruptcy provide debt relief, they work differently to help individuals regain control over their finances. In this article, we will explore the main differences between Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is designed to help individuals who have few or no assets to repay their debts. When filing for Chapter 7 bankruptcy, a trustee is appointed to liquidate or sell the debtor’s non-exempt assets to repay creditors. However, most debtors do not have assets that are not exempt from liquidation, and as a result, their debts are discharged within a few months of filing.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as reorganization bankruptcy, is designed to help individuals who have a significant income and want to keep their non-exempt assets. When filing for Chapter 13 bankruptcy, the debtor submits a repayment plan to pay off their debts over the course of three to five years. The debtor keeps their assets and pays creditors through a trustee appointed by the court.
Main Differences Between Chapter 7 and Chapter 13 Bankruptcy
The main differences between Chapter 7 and Chapter 13 bankruptcy are as follows:
Eligibility:
Not everyone is eligible to file for Chapter 7 bankruptcy. Individuals with a higher income than the median in their state or who have disposable income after living expenses may be required to file Chapter 13 bankruptcy. Chapter 7 bankruptcy also has restrictions on the amount of debt that can be discharged.
Repayment Plan:
Chapter 13 bankruptcy involves a repayment plan, whereas Chapter 7 bankruptcy does not. This allows individuals to keep their assets and pay their debts over time.
Debt Discharge:
Debt discharge in Chapter 7 bankruptcy is quicker than in Chapter 13 bankruptcy. Chapter 7 discharges most debts in a few months, whereas Chapter 13 takes three to five years to complete the repayment plan before debts are discharged.
Conclusion
In conclusion, Chapter 7 and Chapter 13 bankruptcy are different in the way they provide debt relief. Chapter 7 is designed for individuals with few or no assets, while Chapter 13 is designed for individuals with a steady income. Both types of bankruptcy have their advantages and disadvantages, and it’s important to discuss your options with a bankruptcy attorney to determine which type of bankruptcy is best for your financial situation.
Table difference between chapter 7 and 13
| Chapter 7 | Chapter 13 |
|---|---|
| Also known as the liquidation bankruptcy. | Also known as the reorganization bankruptcy. |
| Individuals and businesses can file for Chapter 7. | Only individuals can file for Chapter 13. |
| Non-exempt assets are sold to pay off debts. | Debt repayment plan is established that lasts for 3-5 years. |
| Most unsecured debts (credit card debt, medical bills, etc.) can be discharged. | All debts are included in the repayment plan. |
| Typically takes 3-6 months to complete. | Debt repayment plan lasts for 3-5 years. |
| Can impact credit score for up to 10 years. | Can impact credit score for up to 7 years. |