What is the Difference Between Chapter 7 and Chapter 13?

The difference between these two chapters of the Bankruptcy Code and their time lines are as follows:

Chapter 7: Also called a “straight bankruptcy”, chapter 7 involves the liquidation of non-exempt assets for the benefit of creditors. Most chapter 7 cases are considered “no asset” cases meaning there will be no liquidation or distribution of assets to unsecured creditors. Absent liquidated assets, creditors do not receive any payment on their claims. Chapter 7 generally involves a 3-4 month process. Approximately 30 days from the date the bankruptcy is filed, a hearing is held where a trustee asks specific questions to the debtor under penalty of perjury to ensure the information is complete and accurate. After the hearing, the trustee reports back to the court about the status of your case. Assuming there are no issues, the trustee informs the court that the case is in proper form and that a discharge can be processed. Once the deadlines pass for parties in interest to object to your case, the court will enter the order discharging your debts and closing the file. This usually happens approximately 60-80 days from the hearing date.

Chapter 13: Sometimes called a “wage earner plan” chapter 13 involves the consolidation of debts and repayment of a certain percentage of those debts to unsecured creditors over a period of time. Generally speaking, the repayment term is anywhere from 3-5 years. The amount required to be repaid is determined using a formula that includes your income, current debt and other factors. Just as with chapter 7 cases, a hearing is held approximately 30 days from the filing where the trustee reviews the case and ensures its accuracy. If the trustee has no issues with your case he will approve it on the spot and the debtor simply makes the monthly payment pursuant to the plans specific terms. If the trustee takes issue with any aspect of your case he will object to confirmation and set a hearing date to have the issues addressed and resolved in front of a bankruptcy judge. Practically speaking, however, the majority of these issues are resolved between the debtor and the trustee prior to the date of the court hearing. Once all payments have been make pursuant to the court approved plan, discharge is entered and the remaining debts are eliminated forever. It is best to speak with an experienced bankruptcy attorney before deciding which chapter is right for you.

For more information regarding chapter 7 or 13 bankruptcy filings, or for any other bankruptcy law questions, contact The Larkin Law Firm at http://www.live-debt-free-now.com