What is the Difference between Chapter 7 and Chapter 13 Bankruptcy?

Because of the rough economy, millions of people are falling behind on their bills. Credit card debt piles up on consumers, and it becomes more difficult to qualify for a loan. When debt is out of control and no end is in sight, many people are forced to file for bankruptcy. Bankruptcy is when a person cannot pay his debts. When considering bankruptcy, consumers need to decide what type of bankruptcy is best for them. Two types of bankruptcy are chapter 7 and chapter 13. It is important for individuals to know the difference between these types of bankruptcy. We are Bankruptcy attorneys with three offices in Ohio please call now for a free consultation.

Before individuals can file for chapter 7 bankruptcy, they are required to attend a credit counseling and debtor education course. The laws in each state vary, but debtors must also meet certain income criteria to qualify for chapter 7 bankruptcy. A person will subtract clothing, food, gas, car loans, alimony, mortgage and other necessary expenses from his gross monthly income. If the result is below the state’s median income, individuals might qualify for chapter 7 bankruptcy.

In order to begin the process, debtors must file a petition with the Federal Bankruptcy court in their District. Individuals are required to list all assets and liabilities. Income information, bank statements and tax returns are also necessary to file for chapter 7 bankruptcy. Consumers will be charged various fees to file for bankruptcy. Once the case is filed, creditors cannot attempt to collect money from you.

A trustee will be appointed by the court to determine if assets are available for liquidation to pay creditors. The secured debt will be given to the creditor, and your debts will be erased. In most Chapter 7 cases assets are protected and most people retain the majority of their assets. The bankruptcy will remain on an individual’s credit report for 10 years, so people could have trouble obtaining loans or new credit, and debtors cannot file for chapter 7 Bankruptcy again for at least eight years, but are eligible for a Chapter 13. Upon successful completion of this process the unsecured debts are discharged. However, the discharge will not include most taxes, alimony, child support, or student loans.

Chapter 13 Bankruptcy
With chapter 13 Bankruptcy the debtor will come up with a plan to reorganize and pay a portion or their debts. Debtors will restructure their debts to try to pay their creditors a percentage of the money that they owe. Like chapter 7 bankruptcy, individuals are required to complete a credit counseling session. A person can then work with their attorney to complete the necessary paperwork to file for chapter 13 bankruptcy. Past and present income will need to be documented, and individuals will need to provide six months of pay stubs and tax returns for the last four years. The paperwork will be filed with the court, and the debtor will be required to testify before the Chapter 13 Trustee at a meeting of creditors. After a person files for chapter 13 Bankruptcy, any pending in future legal action must cease, including foreclosure.

The debtor will be asked numerous questions about his expenses, so he needs to be prepared to explain the situation. A payment plan will be proposed and the trustee and court have the final say as to how much money the creditors will receive for the next three to five years on the secured debt. Much of the unsecured debt will be forgiven. With chapter 13 bankruptcy, the person will be able to reinstate on a delinquent mortgage over time and protect assets.

The repayment term for chapter 13 bankruptcy is three to five years. The debtor will be required to make payments each month to the creditors. After the plan is confirmed, the debtor will be permitted to protect their assets. If a person does not pay the creditors, the bankruptcy will dismissed, and the debtor will be required to file again. If the individual does not believe that he can make a payment, he needs to contact their attorney to come up with a proposed modification plan. After the three to five years are completed, the creditors will be paid, and the debt will be discharged. Chapter 13 bankruptcy will stay on a person’s credit report for at least ten years.