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Chapter 7 vs. Chapter 13 Bankruptcy

Chapter 7

A Chapter 7 bankruptcy is a liquidation bankruptcy which allows the debtor to discharge general unsecured debts. These general unsecured debts include credit cards and medical bills, past due utility bills, personal loans, collection agency accounts, and others. Individuals looking to file this type of bankruptcy must pass the Chapter 7 Means Test. Eligibility is determined through income brackets that look at the debtor's income and household size. If you make too much money, you may be required to file a Chapter 13 bankruptcy.

Often people prefer a Chapter 7 bankruptcy because it is a quicker process - only about 3-6 months until discharge. In addition, debtors in a Chapter 7 bankruptcy also get to discharge the majority (and often times all) of their unsecured debts, while keeping most (and often times all) of their assets.

Once a debtor files for Chapter 7 bankruptcy, a trustee will be appointed to administer the case. The trustee reviews the bankruptcy petition that is filed with the court, and will sell any nonexempt assets to pay back creditors. Most clients in a Chapter 7 bankruptcy are able to exempt the majority of their real and personal property. If all of the debtor's assets are exempt, the creditors will receive nothing.

Chapter 13

A Chapter 13 bankruptcy is a reorganization bankruptcy, where the debtor with a regular income pays back a portion of his or her debts through a repayment plan. The Chapter 13 repayment plan lasts for a period of 3 to 5 years, and all disposable income during that time period is paid into the plan. Often a debtor will file a Chapter 13 bankruptcy because he or she makes too much money to qualify for a Chapter 7 bankruptcy, would like the ability to catch up on missed mortgage payments, or strip junior liens from his or her home.

Some of the benefits of filing a Chapter 13 plan are that the debtor gets to keep all of his or property, including nonexempt assets. It also gives debtors time to catch up on debt repayments for cars, homes, tax debts, alimony or child support payments.

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