What Is The Difference Between Chapter 7 And Chapter 13 Bankruptcy?

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Chapter 7 is a liquidation bankruptcy that wipes out most of your general unsecured debts such as credit cards and medical bills without the need to pay back balances through a repayment plan. But if you make too much money, you’ll have to file under Chapter 13 bankruptcy. 

To qualify for Chapter 7 bankruptcy, you must meet income requirements. While Chapter 7 bankruptcy works well for low-income debtors with little or no assets. It can also work for filers whose discharged debt exceeds the value of the property sold, especially if the trustee will apply the funds to non-dischargeable debt, such as income tax or support arrearages. 

Also with Chapter 7 when you file for it, creditors are immediately stopped through an order from pursuing collection efforts. A bankruptcy trustee is appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 7 trustee’s job is to sell your nonexempt property (property that you can’t protect with a bankruptcy exemption) to pay back your creditors. If you don’t have any nonexempt assets, your creditors receive nothing. 

Whereas if you’re a debtor who doesn’t qualify for Chapter 7 but needs debt relief there’s Chapter 13. It’s a reorganisation bankruptcy designed for debtors with regular income who have enough left over each month to pay back at least a portion of their debts through a repayment plan.  

Even though most Chapter 13 filers make too much money to qualify for Chapter 7 bankruptcy, many debtors choose to file for Chapter 13 bankruptcy because it offers many benefits not available in Chapter 7. Such as the ability to catch up on missed mortgage payments. 

In Chapter 13 bankruptcy, you get to keep all of your property including nonexempt assets however you’ll have to pay creditors an amount equal to the value of your nonexempt property. In exchange, you pay back all or a portion of your debts through a repayment plan the amount you must pay back will depend on your income, expenses, and type of debt. 

Therefore if you want to lower credit card payments, stop litigation, or prevent a wage garnishment. Have non-dischargeable debts such as alimony or child support arrears that you’d like to pay off over three to five years. Or have fallen behind on a house or car payment and want to get caught up on missed payments and keep the property. There’s Chapter 13 bankruptcy. 

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