What is the difference between a Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 A chapter 7 bankruptcy is a straight liquidation. The Chapter 7 trustee sells all of the debtor’s assets and uses the proceeds to repay creditors and any unpaid debt is subject to discharge. Those who file for Chapter 7 usually get to keep most or all of their assets because certain assets are exempt from sale by the trustee. Bankruptcy reform legislation established a means test for determining a person’s eligibility to file under Chapter 7. This means test determines whether the person has the ability to repay at least a portion of their debt, and if so, they are not eligible for Chapter 7 but must file under Chapter 13. Chapter 13 Chapter 13 is different. The debtor proposes a debt repayment plan which covers three to five years. The debtor makes regular monthly payments to the bankruptcy trustee who distributes the funds to the various creditors pursuant to a priority hierarchy established by the bankruptcy code. Chapter 13 is appropriate for those who have a regular inco
Chapter 7 Bankruptcy is a “liquidation” bankruptcy. In Chapter 7, the debtor keeps certain assets that are exempt (certain equity in the house and car, furniture, etc.). The remaining (non-exempt) assets, if any, are sold by the bankruptcy trustee and the proceeds are distributed to the creditors. Individuals, corporations and partnerships may file a Chapter 7 bankruptcy. Chapter 13 Bankruptcy is repayment of certain debts over a period of 3 or 5 years. In Chapter 13, the debtor prepares a plan in which he/she agrees to pay a certain portion of the future income to the bankruptcy trustee for payment to the creditors. Only individuals with regular income that owe unsecured debts of less than $336,900 and secured debt of less than $1,010,650 may file a Chapter 13 bankruptcy.
