Chapter 7 Versus Chapter 13 Bankruptcy: What’s The Difference?
At the Law Office of Paul L. Urich, P.A., we often receive calls from people asking about the difference between Chapter 13 bankruptcy and Chapter 7 bankruptcy. Both chapters are designed to provide debt relief for people seeking a fresh start from the burden of personal debt.
Chapter 7 bankruptcy is a way to eliminate all or most of your secured and unsecured consumer debt. We say ”most,” because some types of debt cannot be erased by Chapter 7. Student loans and most other loans backed by the government cannot be discharged. After certain conditions have been met, state and federal tax debt may qualify for discharge under Chapter 7.
In addition, a filer can claim one personal residence as exempt from discharge. If you “reaffirm” that you are willing to repay the mortgage loan, you can likely keep your house. You may also be able to reaffirm your debt on your car loan.
Your creditors, of course, will fight to prevent a total discharge of your debts. A bankruptcy court will decide which debts can be erased and which must be repaid under terms supervised by the courts.
Will You Qualify For Chapter 7 Bankruptcy?
Under the Debt Relief Act of 2005, all petitioners for Chapter 7 debt elimination are subject to a means test to determine whether their debt to assets ratio qualifies them for Chapter 7. The means test is complex and an experienced bankruptcy lawyer is an important part of making sure your income and debt are accurately applied to give you the most advantage.
Chapter 13 is a debt-restructure option. It is a good option for people who do not meet the government’s Chapter 7 means test, or who do not wish to discharge all of their debts. The good news is that everyone qualifies for Chapter 13 bankruptcy, and all types of debt may be included. Under Chapter 13, you will submit a proposed debt restructuring plan that can save you thousands of dollars in interest payments. If the creditors accept the restructure plan, the courts will supervise the repayment schedule. Student loans, SBA loans and all other debt may be included in the debt restructure. As with Chapter 7, you avoid foreclosure and repossession and may choose to exempt your mortgage and some other debts from the plan.
For answers to all of our questions about Chapter 7 and Chapter 13 bankruptcy, talk to an experienced debt relief attorney at the Law Offices of Paul L. Urich. We will explain the bankruptcy process and what your life will be like after bankruptcy.
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We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.