What Is The Difference Between Chapter 7 And 13 Bankruptcy?

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Do you have an unmanageable and overwhelming amount of debt? Are you facing foreclosure on your home or the repossession of your vehicle? Then you may be considering filing for bankruptcy to put a temporary halt to your financial woes.

The word bankruptcy is reacted to differently by everyone. To some, it is a beacon of hope that means you will never have to pay your bills again. To others, it means that you’ve skirted out of your debts, and has a very negative connotation. If you want to know what bankruptcy really is, ask a Tampa bankruptcy attorney. But what type of bankruptcy is right for you – a Chapter 7 or Chapter 13 bankruptcy? 

What is a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, will help you to clear out most of your unsecured general debts, including medical bills and credit cards. You must meet certain income requirements and pass what is known as the “Chapter 7 Bankruptcy Test” to qualify for a Chapter 7 bankruptcy.

Chapter 7 bankruptcy also means that you will have to surrender your assets, such as cash and property.

What is a Chapter 13 Bankruptcy?

Also known as a “reorganization” bankruptcy, a Chapter 13 bankruptcy enables you to repay the debt you owe to lenders and creditors and restructure your finances. Your property isn’t sold during a Chapter 13 protection, and you may also keep it if you successfully complete a court-mandated repayment plan.

After you complete the repayment plan (which usually lasts three to five years), any remaining unsecured debt, such as medical bills or credit card debt, may be wiped clear.

What Are The Requirements Needed To File A Chapter 7 Or A Chapter 13 Bankruptcy?

For Chapter 7, there is a means test, which typically means that if the individual makes above a certain amount of money, they may not qualify. The other consideration for Chapter 7 is that in many instances, you’re limited on the amount of stuff that you can keep. With Chapter 13, the primary requirement is just to have consistent income.

What Kinds Of Debt Are Discharged In Chapter 7 Or Chapter 13 Bankruptcy?

With Chapter 7, most types of debts are discharged. Normally, we think about Chapter 7 discharging unsecured debts, like credit cards and medical bills, but it also discharges secured debts like mortgages and vehicles. However, if a bankruptcy filer wants to keep their home, or the vehicle that the loan’s associated with, then sometimes they have to make arrangements with those lenders. In contrast, there are certain debts that are not wiped out by a Chapter 7 discharge, like student loans, domestic support obligations, and most taxes. Chapter 13 isn’t significantly different in terms of the debts that are or are not discharged; it’s just that a lot of times they are addressed differently, so the debts that otherwise would not be discharged are paid off through the chapter 13 payment plan.

There are some subtle differences when it comes to things like domestic support obligations that are dischargeable in Chapter 13, but are not discharged in Chapter 7.

What Kinds Of Debt Cannot Be Discharged In A Chapter 7 Or A Chapter 13 Bankruptcy?

There are a number of debts that are considered non-dischargeable. Often, if a debt is owed to the government (things like taxes or if you have an obligation to pay the government as a result of the criminal restitution), that’s typically going to be non-dischargeable. Debts related to domestic support obligations (like spousal support or child support) or debts incurred in fraud are also non-dischargeable. Student loans are non-dischargeable, and those are the big ones.

What Can I Keep In a Chapter 7 As Well As A Chapter 13 Bankruptcy?

As a trade-off for the benefit that a bankruptcy filer gets in Chapter 7 of wiping out all their debts, the bankruptcy filer may have to give up certain property that is above the basics. The list of that property, which we call “exempt property,” comes from state law. In the state of Florida, you can typically hold on to your primary residence, retirement accounts, things like 401(k)s and IRAs, and a basic amount of household belongings and household furnishings.

By contrast, in Chapter 13, you can hold on to virtually anything. However, the items that you keep may impact the amount of your payments into the Chapter 13 plan.

How Do I Know Which Type Of Bankruptcy Is Right For Me?

Our firm will complete a comprehensive analysis in evaluating which chapter bankruptcy appears more appropriate. Usually we look at income, expenses, assets, and debts to figure out the right fit. For some people, they are forced to file only one chapter or another. So for example, if they make too much money, then they may not even qualify for a Chapter 7. In other instances, a potential filer might be eligible for both chapters, but there might be a specific benefit that would direct us more towards one chapter or the other. For example, Chapter 7 doesn’t offer any tools to help someone who is behind on their mortgage get caught back up, whereas Chapter 13 has several tools that allow for those opportunities. Sometimes, Chapter 13 allows the bankruptcy filer a certain amount of creativity, to where we may even be able to get rid of secondary mortgages, which is called lien stripping. We evaluate someone’s entire financial picture to help our clients decide which type of bankruptcy is right for them.

The type of bankruptcy you qualify for depends on how much you make and is handled in the best way possible that will appease the creditors and allow you to continue to live and provide for yourself and your family. Bankruptcy is never a clear-cut abandonment of your debts. No one can wave a magic wand and make your debts disappear. Instead, bankruptcy is an intricate process that can help you to get back on your feet and eliminate debt that you cannot afford. For more information on Bankruptcy In Florida, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.