What Are Chapter 7 And Chapter 13? What Is The Difference?

  • Chapter 13 Bankruptcy

What Are Chapter 7 And Chapter 13? What Is The Difference?

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In this article, you will know what kinds of debts can be discharged under each and who is eligible for chapter 7 and who is eligible for chapter 13.

Chapter 7?

Chapter 7 bankruptcy is also called “ straight bankruptcy”. Here all your dischargeable debts are discharged, you just have to keep a list of debts you owe to each company and the list of your assets. There are assets called exempt property which include home, car, and anything essential to start a new life but here also there is a limit to the value of assets till which you can keep. For example, in Illinois, you are allowed to protect $15000.00 equity in your house, $2400.00 worth of a car, and $4000.00 worth of everything else. These are common examples of exemptions. If you want to keep all your assets it is advisable to go for chapter 13 bankruptcy. If you live in or near Los Angeles & Dallas, TX, you can contact Recovery Law Group – (888-297-6203)  to know more about bankruptcy.

Under chapter 7, the dischargeable debts include credit card debts, utility bills, some types of taxes, or even medical bills, but debts like a student loan, alimony, or child support, and certain types of taxes are not discharged.

To qualify for chapter 7 bankruptcy you will have to pass the ‘Means tests’ which determine if you make more or less than the state’s median depending on your household size, income, and expenses.

Chapter 13?

Chapter 13 bankruptcy is reorganizing of your debts over a repayment period of 3 – 5 years which will be supervised by the court. You are advised to file for chapter 13 if you have a lot of assets and you don’t want to lose them.

For filing under this, you will have to take a “Means test” it is different from the one which we take for chapter 7. Here, the average is taken from the last 6 months of your income after deducting your expenses like taxes, car payments, etc. This amount which is left after deduction tells the court how much funds you have to clear for unsecured debts like credit and debit card loans.

The second way of deciding your 3 – 5 year repayment plan is to see how much property you have after protecting as much as you could.

The attorney will contact your creditors and give them all the necessary information and the creditors cannot contact you during this period or threaten you for payments.

Which one is best for you?

For determining that, you need to first find an experienced attorney who can guide you throughout the process and help to determine which is for you that is either chapter 7 / debt elimination or chapter 13 / debt reorganization, as well as the means test you take. A major factor is a time, in chapter 7 it takes more or less 6 months and in chapter 13 it takes 3 – 5 years to close the case.

You need to cautiously see which one is best for you, if you have too many assets that you don’t want to give away then you might want to apply for chapter 13 and if all your assets are protected under chapter 7 then it would be better for you to apply for chapter 7 as it closes faster than chapter 13.