Chapter 7 and Chapter 13 Bankruptcy Essential Facts

Many people are unaware of the different chapters of bankruptcy or may have trouble distinguishing between a Chapter 7 and Chapter 13 bankruptcy. Here are some very basic things you should know about the differences between a Chapter 7 and Chapter 13 bankruptcy

Chapter 7

  • Your unsecured debts (credit cards, medical bills, judgments, etc) are liquidated
  • You must qualify based on your monthly income
  • Your assets may be liquidated to pay your creditors unless they are protected by state law exemptions
  • Majority of Chapter 7 bankruptcies are "no assets" bankruptcies where no assets are liquidated
  • You can only file for Chapter 7 bankruptcy every 8 years
  • Can only temporarily delay a foreclosure sale
Chapter 13
  • Reorganizes your debts and provides a repayment plan for your debts
  • Repayment plans last for 3-5 years during which the bankruptcy trustee has control of your finances
  • Repayment plan must be approved by a judge who needs to believe that you have the ability to repay your debts
  • Allows you to keep your assets
  • Can stop a foreclosure sale and allow you to keep your house if you can maintain your mortgage payment and pay past arrearages
Similarities
  • Your bankruptcy petition must be truthful and accurate
  • Require completion of credit counseling and personal financial management classes

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