Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

The Differences Between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy

While both Chapter 7 bankruptcy and Chapter 13 bankruptcy allows debtors to get a fresh financial start, there are some major differences between the two bankruptcy chapters.

Let’s a take a look at a few:

Time – The amount of time required of the debtor is different for each bankruptcy chapter. Chapter 7 bankruptcy takes as little as 3 to 4 months for the least complex cases.  By contrast, Chapter 13 bankruptcy will require a minimum commitment of 3 years and as much as 5 years from the debtor.  In this 3 to 5 year period the bankruptcy debtor will make payments to creditors.

Payments Of Debts – In Chapter 7 bankruptcy, the debtor is not required to make monthly debt payments to the bankruptcy trustee; but they may be required to liquidate non-exempt assets and repay creditors from the proceeds. In Chapter 13 bankruptcy, the payments are made to the bankruptcy trustee.

Secured Debts – While secured debts are treated as priority in both Chapter 7 and Chapter 13 bankruptcy, the repayment of secured debts is treated differently in each bankruptcy chapter.  In Chapter 7 bankruptcy, a debtor who has fallen behind on their mortgage payments will need to repay the delinquent portion immediately if they want to keep their home.  However, if that same debtor was in Chapter 13 bankruptcy, they would be allowed to repay the delinquent portion of their mortgage over the course of the bankruptcy repayment plan.  That means that the debtor could technically take up to five years to repay a delinquent mortgage.

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