Chapter 7 vs. Chapter 13 Bankruptcy
Bankruptcy Law – Chapter 7 vs. Chapter 13 Bankruptcy
Which Option Is Best For Me?
Most are aware of the terms “Chapter 7 Bankruptcy” and “Chapter 13 Bankruptcy” but few may understand the main differences between the two as well as which type of bankruptcy is best for their unique situation.
The chart below compares the two and will help you decide which one is best for you. Of course, it is always a good idea to contact a professional Bankruptcy Attorney but the chart is designed to help consumers facing bankruptcy to better understand the differences between the two.
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
Type of Bankruptcy
Liquidation
Reorganization
Who Can File?
Individuals and business entities
Individuals only (including Sole Proprietors)
Eligibility Restrictions
Disposable income must be low enough to pass the Chapter 7 Means Test
Cannot have more than $383,175 of unsecured debt or $1,149,525 of secured debt
How Long Does It Take To Receive A Discharge?
Typically 3 to 5 months
Upon completion of all plan payments (usually 3 to 5 years)
What Happens To Property in Bankruptcy?
Trustee can sell all non-exempt property to pay creditors
Debtors keep all property but must pay unsecured creditors an amount equal to the value of non-exempt assets
Allows Removing Unsecured Junior Liens From Real Property Through Lien Stripping?
No
Yes (if requirements are satisfied)
Allows Reducing the Principal Loan Balance on Secured Debts Through a Loan Cramdown?
No
Yes (if requirements are satisfied)
Benefits
Allows debtors to quickly discharge most debts and get a fresh start
Allows debtors to keep their property and catch up on missed mortgage, car and non-dischargeable priority debt payments
Drawbacks
Trustee can sell non-exempt property and this does not provide a way to catch up on missed payments to avoid foreclosure or repossession
Debtors must make monthly payments to the trustee for 3 to 5 years and may have to pay back a portion of general unsecured debts
Chapter 7 vs. Chapter 13 Bankruptcy
Which Option Is Best For Me?
Most are aware of the terms “Chapter 7 Bankruptcy” and “Chapter 13 Bankruptcy” but few may understand the main differences between the two as well as which type of bankruptcy is best for their unique situation.
The following comparison of the two and will help you decide which one is best for you. Of course, it is always a good idea to contact a professional Bankruptcy Attorney but the comparison is designed to help consumers facing bankruptcy to better understand the differences between the two.
TYPE OF BANKRUPTCY
- Chapter 7: Liquidation
- Chapter 13: Reorganization
WHO CAN FILE?
- Chapter 7: Individuals and business entities
- Chapter 13: Individuals only (including Sole Proprietors)
ELIGIBILITY RESTRICTIONS
- Chapter 7: Disposable income must be low enough to pass the Chapter 7 Means Test
- Chapter 13: Cannot have more than $383,175 of unsecured debt or $1,149,525 of secured debt
HOW LONG DOES IT TAKE TO RECEIVE A DISCHARGE?
- Chapter 7: Typically 3 to 5 months
- Chapter 13: Upon completion of all plan payments (usually 3 to 5 years)
WHAT HAPPENS TO PROPERTY IN BANKRUPTCY?
- Chapter 7: Trustee can sell all non-exempt property to pay creditors
- Chapter 13: Debtors keep all property but must pay unsecured creditors an amount equal to the value of non-exempt assets
ALLOWS REMOVING UNSECURED JUNIOR LIENS FROM REAL PROPERTY THROUGH LIEN STRIPPING?
- Chapter 7: No
- Chapter 13: Yes (if requirements are satisfied)
ALLOWS REDUCING THE PRINCIPAL LOAN BALANCE ON SECURED DEBTS THROUGH A LOAN CRAMDOWN?
- Chapter 7: No
- Chapter 13: Yes (if requirements are satisfied)
BENEFITS
- Chapter 7: Allows debtors to quickly discharge most debts and get a fresh start
- Chapter 13: Allows debtors to keep their property and catch up on missed mortgage, car and non-dischargeable priority debt payments
DRAWBACKS
- Chapter 7: Trustee can sell non-exempt property and this does not provide a way to catch up on missed payments to avoid foreclosure or repossession
- Chapter 13: Debtors must make monthly payments to the trustee for 3 to 5 years and may have to pay back a portion of general unsecured debts
Considering Bankruptcy?
If you are seriously considering Bankruptcy as an option to get out from under your debt,
contact us today to schedule a consultation.