Difference between Chapter 7 and Chapter 13 Bankruptcy

People who have amassed large amount of debts have the option of going for Chapter 7 or Chapter 13 bankruptcy. While in the former the debtor requests the Court’s assistance in discharging the amounts due from you, under Chapter 13 the debtor presents the Court with a debt repayment plan for its approval.

Chapter 7 bankruptcy is referred to as liquidation bankruptcy. Chapter 7 offers the opportunity for a debtor to mark a new beginning after obtaining a discharge from debts. The Court, on its approval, appoints a trustee to sell off the assets of the debtor except for some exceptions and distribute them amongst the creditors. The federal and state laws provides for certain exemptions on the assets that can be sold and distributed. The debtor who holds a property worth $17,425 as his primary residence, $2,775 worth vehicle, or any alimony and child support benefits are typically exempted under the federal laws from being disposed off to repay the creditors. The proceeds from the sale are utilized to pay a portion of the money raised from the certain creditors. While some creditors are provided with the portion of sale proceeds, many are “forgiven” or discharged by the Court. The Chapter 7 proceedings generally take a time frame of 3 ½ months for its completion. The law prevents one from filing again under Chapter 7 for a period of seven years. A debtor whose income falls below the median income is eligible to file for Chapter 7.

Often termed as the “wage earner’s plan,’ the Chapter 13 demands the debtor to enjoy the presence of regular income to make him eligible for the same. Under Chapter 13 the unsecured debt should not exceed $336,900, while the secured limit is $1,010,650. Under this statute, the debtor presents to the Court a repayment option based on the income and expenses in his household. The advantage it has over Chapter 7 is that the debtor is provided with the option of retaining all of his assets and prevents foreclosure of his real estate. The time frame for repayment varies around 3-5 years depending on the median income enjoyed by the debtor. The law looks into the fact that the debtor has not been granted a discharge under Chapter 7 bankruptcy in the previous 4 years or under Chapter 13 discharge in the last 2 years before considering his eligibility for relief under this clause.