Chapter 7 vs. Chapter 13 Bankruptcy

Both Chapter 7 and Chapter 13 can be useful tools to help individuals get a fresh start.  However there are many differences between the two chapters and the end result of each Chapter can be drastically different.

• Chapter 7 bankruptcy liquidates debt.  Debtors are not required to pay back debts that are eligible for discharge like they are in a Chapter 13 bankruptcy.  In a Chapter 7 bankruptcy certain assets may be taken away and sold by the trustee in order to settle debts with creditors.  Not every individual or business is eligible for Chapter 7 bankruptcy.  Debtors must meet certain income requirements or pass a means test in order to determine whether or not eligibility for Chapter 7 is available.
• Chapter 13 bankruptcy reorganizes debt.  Debtors are required to repay a portion or all of their debts through a payment plan that is approved by the court.  The repayment plan typically lasts for a period of 3 to 5 years.  One of the main advantages of a Chapter 13 bankruptcy over a Chapter 7 bankruptcy is that it offers individuals an opportunity to save their home from foreclosure.There are debt limits for both secured and unsecured debt which must be met in order to be eligible for a Chapter 13 bankruptcy.  Also, a corporation or partnership may not be a Chapter 13 debtor.

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