What is the difference between Chapter 7 and Chapter 13?
Chapter 7 – Timeframe: approximately 4 months Chapter 7 is a liquidation bankruptcy. In this type of bankruptcy, you don’t have to repay your unsecured debts; they are discharged (A discharge is a Court order stating that you do not have to repay). Some debts can’t be discharged in a bankruptcy and must be paid. Most unsecured debts are usually discharged. You may be eligible for this type of bankruptcy if you are able to pay your monthly living expenses and any secured debt payments but don’t have any money left over to make payments on unsecured debts. A trustee is appointed by the Bankruptcy Court to review your case. One of the trustee’s jobs is to see if you have any assets that are not protected by bankruptcy law. Almost everyone who files Chapter 7 in Texas gets to keep all of their assets. Your attorney can tell you before you file your case if any of your assets are at risk. If you do have an asset that is not protected, the Trustee can sell it and use the money to repay a por
There are several differences between Chapter 7 and Chapter 13, and a more thorough discussion can be found in the Chapter 7 vs. Chapter 13 link on this website. Chapter 7 is a relatively quick process in which one discharges his or her debts that are dischargeable. But in Chapter 13, the idea is to pay back to ones creditors as much as possible for usually 60 months depending on what the debtor can afford to pay, and the part of the debt that is not paid back is discharged. Based on this simplistic explanation, it sounds as if everyone would want to file a Chapter 7 rather than a Chapter 13. However, this is not necessarily the case because Chapter 13 has several complex advantages over Chapter 7. For example, Chapter 13 will usually allow one to stop the foreclosure on their home or the repossession of their car, whereas a Chapter 7 will merely delay the foreclosure or repossession.
Chapter 7 is designed as a liquidation or sell-out type of bankruptcy. With a Chapter 7, debtors give up certain property that they own at the time they file the bankruptcy case, which is sold by a trustee. The trustee uses the proceeds of the sale to pay creditors. In other cases, probably most cases, the debtor does not have any assets over and above what the law allows the debtor to keep. So, in most chapter 7 cases, the debtor does not give up any property. Still, we call chapter 7 cases liquidation cases. The bankruptcy case addresses only the debts the debtor lists at the time of the bankruptcy case. Future debts must always be paid as usual. Debtors are allowed to keep the money that they earn after filing the bankruptcy case, as well as most other property that they obtain after the filing Chapter 13 is very different. Debtors pay some of their debts over time from their current income, pursuant to a court-approved plan. Debtors in chapter 13 usually keep all of their property,
A Chapter 7 Bankruptcy is also called an asset liquidation case. This means a debtor does not have sufficient income to pay his or her creditors and any non-exempt or excess assets are liquidated for the benefit of the creditors. In most cases, there are no excess assets to be liquidated, so the debtor does not lose any property. A Bankruptcy Petition filed under Chapter 13 of the Bankruptcy Code is also called a wage earner plan. This means the debtor has sufficient income to pay all or a percentage of their debts over time. A common Chapter 13 plan requires the debtor to pay a monthly sum to the Trustee over three to five years. Chapter 13 can also be used to pay mortgage arrears and allow a home-owner to avoid foreclosure.
