Major Differences Between Chapter 7 and Chapter 13 Bankruptcy

When you wonder whether bankruptcy is right for you and your financial situation, you should remember that there are different kinds of bankruptcy proceedings. The most common types of bankruptcy cases are Chapter 7 and Chapter 13 bankruptcy cases. Although both types of bankruptcy proceedings are a means to managing debt for individuals or married couples, significant differences exist between the two types of cases.

  1. Chapter 7 bankruptcy liquidates property and discharges debts, but Chapter 13 is a repayment plan for most or all your debts. In a Chapter 7 bankruptcy, the bankruptcy trustee liquidates or sells all your nonexempt assets to pay your debts and discharges remaining eligible debts. In a Chapter 13 bankruptcy, you repay a certain percentage of your future income to the trustee to be applied to some or all of your debts.
  2. If you are behind on your mortgage, you have different options depending on which form of bankruptcy you choose. If you want to keep your home, you can file a Chapter 13 bankruptcy and pay the past-due mortgage payments over three to five years. However, if you file a Chapter 7 bankruptcy, if you don’t catch up on your payments shortly after filing, the mortgage company or bank can seize and foreclose on your house with the permission of the bankruptcy court.
  3. A Chapter 13 bankruptcy usually lasts longer than a Chapter 7 bankruptcy. You often can discharge your debts in Chapter 7 bankruptcy proceedings in a matter of four to six months. In a Chapter 13 bankruptcy, your repayment plan lasts three to five years.
  4. Your income may affect which type of bankruptcy you can choose. If your current monthly income is more than the median family income for your state and further means testing shows that you can complete a five-year repayment plan, you must file a Chapter 13 bankruptcy. If you file a Chapter 7 bankruptcy, the court will order you to convert your case to a Chapter 13 bankruptcy or dismiss it altogether.
  5. If you filed for bankruptcy before, it might affect when you can file for each type of bankruptcy again. You cannot get a Chapter 13 discharge if you received a Chapter 7 discharge in a case filed less than four years ago, or a Chapter 13 discharge in a case filed less than two years ago. You cannot get a Chapter 7 discharge if you received a Chapter 7 discharge in a case filed less than eight years ago, or a Chapter 13 discharge in a case filed less than six years ago (with some exceptions).
  6. The only way to keep valuable nonexempt property that you own is to file a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, you must give up the property to be sold by the trustee, pay the trustee for its fair market value, or exchange exempt property of equal value for it.
  7. How much debt you have can affect what type of bankruptcy case you can file. Although there are limits on how much debt you can have to file a Chapter 13 bankruptcy proceeding, there are no limits on how much debt you can have to file a Chapter 7 bankruptcy proceeding.
  8. In a Chapter 7 bankruptcy, you generally will keep your future income, but in a Chapter 13 bankruptcy, a percentage of future income must go to pay your debts. You can keep your future income in a Chapter 7 bankruptcy case unless you receive certain types of income within 180 days of filing your bankruptcy case, such as an inheritance or divorce settlement.

Contact LBE Law Firm to Explore Your Options Today

The attorneys and staff at LBE Law Firm can provide you with individualized legal representation in various legal matters, including bankruptcy and other consumer matters. We will thoroughly assess your situation and determine the best strategy for your case. LBE Law Firm also handles other legal matters, including immigration law, family law, contracts, and wills and estates. You can call us today at 1-424-LBE-LAW4 (1-424-523-5294) (call, text, or WhatsApp) or contact us via email at info@lbelawfirm.com. We look forward to hearing from you and showing you how we can help with your legal matter.

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