Bankruptcy 101: What Is The Difference Between Chapter 7 and Chapter 13?

July 27, 2011 by  Filed under: Bankruptcy 

The Basics of Bankruptcy

Bankruptcy, also commonly referred to as insolvency, is the legal status of a person or an institution that is unable to pay debts to creditors as they become due.

Located at Title 11 of the United States Code, the six types of bankruptcy under the Bankruptcy Code are as follows:

· Chapter 7

· Chapter 9

· Chapter 11

· Chapter 12

· Chapter 13

· Chapter 15

Chapter 7 vs. Chapter 13

Chapter 7 and Chapter 13 are the most common types of bankruptcy for individuals. Chapter 7 filings constitute almost 65% of all U.S. consumer bankruptcy filings.

Chapter 7 bankruptcy is often referred to as straight bankruptcy or liquidation. Under Chapter 7, an appointed trustee can collect all the non-exempt properties of the debtor, put them up for sale and distribute the proceeds to the creditors. This does not mean however that filing for Chapter 7 is tantamount to losing all your assets.

The key word here is non-exempt. A debtor has exemptions as provided by state laws and these exemptions are assets and valuables the trustee is not permitted to obtain and sell. More often than not, a debtor filing for Chapter 7 still gets to keep all of her or her assets while his debts are completely eliminated.

A Chapter 7 bankruptcy will remain on a person’s credit report for 10 years from the date of filing the petition. A person who has taken advantage of a Chapter 7 and obtained a discharge within the last 8 years is not eligible to file for protection under Chapter 7.

Chapter 13 bankruptcy on the other hand involves the restructuring of an individual’s debts where his income is utilized to pay his expenses in the future while at the same time paying a portion of his past debts. This type of bankruptcy is only applicable to a debtor who has a sufficient regular income to pay for his current expenses and still have enough left to pay for a fraction of his debts.

If a debtor filing for bankruptcy have a regular income and after all regular and necessary expenses are paid, still has at least $167.00 left over, he or she must file a Chapter 13 to seek protection from creditors. A typical Chapter 13 requires a payment plan of 60 months.

Under Chapter 13, a debtor gets to keep all of his property but the bankruptcy court approves an interest-free plan for repayment of unsecured debts and this must begin within thirty to forty-five days after the case started. Also, while the Chapter 13 bankruptcy is still pending, a debtor is not allowed to obtain additional credit without the approval of the bankruptcy court.

Compared to Chapter 7, a Chapter 13 bankruptcy stays in an individual’s credit report for just 7 years and gives the debtor the capability to discharge unsecured portions of a secured debt. Not only that, a Chapter 13 can stop home foreclosures and allow a debtor to attempt to restructure the debts without having to catch up all back payments at once.

Decisions, Decisions

Ultimately, there are a lot of options to be weighed before making a decision when filing for bankruptcy. The stress of having to make these important decisions can be alleviated by the advice of a very good bankruptcy lawyer. Contacting a reputable bankruptcy lawyer is the first decision you should make when considering your options.

For more helpful information on Chapter 7 and Chapter 13 bankruptcy, contact a bankruptcy lawyer who has experience in bankruptcy law and helping clients protect their assets. The Law Office of Kevin J. Pratt is comprised of dedicated Georgia bankruptcy attorneys who put the client’s interests first.

The experienced Georgia bankruptcy attorneys of the Law Offices of Kevin J. Pratt will guide you through the bankruptcy process and ensure that you receive the protection you deserve.

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