Difference between chapter 7 and chapter 13 bankruptcy : In this post, we will discuss the difference between chapter 7 and chapter 13 bankruptcy.
Chapter 7 bankruptcy means liquidation of assets, which includes the debtor’s home as well as all other property.
In this process, the debtor’s unsecured creditors will get their share of the property. On the other hand, Chapter 13 bankruptcy is the most common form of consumer bankruptcy.
This type of bankruptcy involves repayment of debt over a period of time. It also covers non-business debts.
Chapter 13 is the most commonly used type of bankruptcy. This is because it allows the debtor to repay his debts through a payment plan and use his future earnings to repay his debts. The debtor must file a petition to seek relief under this chapter.
If the case is approved, the debtor’s future wages are garnished and he is required to pay the full amount of his debts.
The debtor must pay a percentage of the money that he earns during the plan to his creditors, depending upon the amount of his debt. He may have to do this for up to three years or until all the debt is paid off.
The debtor can have a different person to manage his money during this period. The trustee or trustee’s attorney is the person who manages the money.
They are responsible for managing the money that is paid towards the creditors.
The debtor can repay his creditors as long as he earns the required amount of money for the payment.
If he fails to earn the required amount, he can ask the trustee or trustee’s attorney to collect the money and pay it back to the creditor.
Chapter 7 vs Chapter 13 Bankruptcy
The main difference between Chapter 7 and Chapter 13 bankruptcy is that in Chapter 7, the debtor can pay the creditors but in Chapter 13, the debtor needs to make some payments to the trustee to pay off the debts.
Chapter 7 bankruptcy is available to any individual who is unable to pay their debts. In Chapter 13, you are given the opportunity to pay off your debts gradually over several years.
What is Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a process through which a debtor is able to discharge all of his/her debts. In other words, the debtor is allowed to declare bankruptcy to have all of his/her debts discharged.
Chapter 7 bankruptcy is usually initiated when a person has not been able to pay all of his/her debts and therefore he/she is not able to repay them within a reasonable amount of time. This type of bankruptcy is called as liquidation bankruptcy.
The process of chapter 7 bankruptcy includes the following steps:
1) A creditor or a trustee (a representative of the creditors) files a petition.
2) An attorney is appointed to represent the debtor.
3) The court determines if the debtor has the capacity to enter the bankruptcy.
4) The court determines if the debtor’s case should be dismissed.
5) The debtor is allowed to file an objection to the creditor’s claim.
6) The debtor is given an opportunity to object to the trustee’s report.
7) The court determines if the debtor is eligible for a chapter 7 bankruptcy.
8) The court makes an order for payment of the debts.
9) The court discharges the debtor.
10) The debtor is allowed to obtain a discharge.
What is Chapter 13 Bankruptcy
Chapter 13 is a section of bankruptcy law that was originally designed for people who could afford to pay back their creditors but were facing a severe financial crisis.
The bankruptcy laws are meant to provide the debtor a clear opportunity to deal with his or her debts without losing the entire house.
Under Chapter 13, a debtor may be required to pay back some of the money owed to the creditor within a certain time.
The court has the power to modify the repayment plan once the debtor fails to comply with the original terms of the repayment plan.
A debtor has to prove that he or she is insolvent to file for bankruptcy.
A person is insolvent if his or her liabilities exceed his or her assets. A debtor has to meet two conditions for filing for Chapter 13.
Firstly, he or she must have income that exceeds the monthly expenses. Secondly, the debtor has to be able to repay a part of the debt before the end of the repayment period.
If a debtor can’t satisfy both conditions, then he or she will be forced to file for Chapter 7 Bankruptcy.
Main differences between Chapter 7 and Chapter 13 Bankruptcy
Chapter 7 bankruptcy involves liquidation of assets to repay debts, whereas Chapter 13 bankruptcy involves reorganization of debts to pay off the debts.
Chapter 7 bankruptcy is commonly referred to as ‘straight bankruptcy’ because it liquidates all the assets of the debtor.
Chapter 13 is commonly referred to as ‘reorganization’ bankruptcy, because it enables the debtor to continue to operate during the repayment period.
Chapter 13 has provisions for payment plan which is used for repayment of debts over 3 years or 5 years depending on the nature of debts.
The creditor has the option to negotiate with the debtor to get a lower repayment plan as well as extend the time of repayment.
Chapter 7 bankruptcy is initiated by the filing of a petition with the court, whereas, Chapter 13 bankruptcy requires the filing of a petition with the bankruptcy court.
Chapter 7 bankruptcy is commonly applied to individuals and corporations, whereas, Chapter 13 is applied to individuals, corporations, partnership and unincorporated associations.
Chapter 7 bankruptcy involves liquidation of all the assets of the debtor whereas, in Chapter 13, a portion of the assets of the debtor is retained and a plan of repayment is formulated.
Chapter 13 bankruptcy can be filed at any time within 180 days from the date when the case was filed.
Comparison between Chapter 7 and Chapter 13 Bankruptcy
Parameter of Comparison: Chapter 7 Bankruptcy – Chapter 13 Bankruptcy
Filing type: Individual Personal bankruptcy Corporation or partnership personal bankruptcy
Possible remedies: Individual Corporation or partnership
Liquidation of assets: Bankruptcy court liquidates the assets of the bankrupt individual It does not liquidate the assets of the bankrupt corporation or partnership.
Restoration of debt: Individual Corporation or partnership
Bankruptcy Court: Court for individual Court for corporate or partnership
Debtor: Individual Corporate or partnership
Attorney: Individual Corporate or partnership
Approval: Bankruptcy judge will approve the filing. Bankruptcy judge will approve the filing.
Creditor: The creditors can file a lawsuit against the bankrupt individual It can also be filed against the corporation or partnership.
Difference between Chapter 7 and Chapter 13 Bankruptcy
Chapter 7 bankruptcy is used when your current debt is too high. This is a legal document that allows your creditors to file a claim against your assets and seize them. This chapter allows for the automatic discharge of debts.
The bankruptcy court will then review your case to determine if the debtor can afford to pay back the loan.
If you are found to be able to pay back your loan, you are discharged from your debts and your creditors can no longer come after you for any unpaid balance.
Chapter 13 bankruptcy is used when you have too much money and you owe more than your home is worth.
It allows for an individual to set up a repayment plan with creditors and stay in their home.
Creditors cannot come after you for any unpaid balance on the loans if you choose to go through a Chapter 13 bankruptcy.
Chapter 7 bankruptcy can be filed immediately without a court hearing. The bankruptcy court will review your case and determine if you are able to repay your creditors.
If you are, the bankruptcy will be filed and your debts discharged. If not, your creditors will receive notice and can file a claim for the amount you still owe.
You will remain in your home until the court approves the plan.
Chapter 13 bankruptcy requires a court hearing and approval. Creditors will not get their money back if you choose to file for Chapter 13 bankruptcy.
The court will allow you to make payments until you have paid off your debts.
