Difference Between Chapter 7 and Chapter 13

Most bankruptcies filed in the United States are either Chapter 7 or Chapter 13 bankruptcy cases. Which bankruptcy is the right choice depends on the earned income, assets, debts, and financial goals?

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  • Under Chapter 7, Bankruptcy or “Liquidation of Assets,” certain consumer assets are liquidated to pay off outstanding debts to creditors. Once filed, this type of bankruptcyType Of BankruptcyBankruptcy is a legal course of action that individuals or organizations can use when they are unable to pay their debt obligations. The Bankruptcy Code of the United States identifies five distinct types, including Chapters 7, 9, 11, 12, and 13.read more is typically discharged approximately three months later with no further payments made by the consumer.Chapter 13 bankruptcy can also be termed a debt plan (adjusted) under which the court approves a repayment plan. Under chapter 13 bankruptcy, the consumer must periodically make partial payments to its creditor over several years. Once the repayment plan is complete, the bankruptcy is discharged.

Chapter 7 vs Chapter 13 Bankruptcy Infographics

Let’s see top differences between chapter 7 vs chapter 13 bankruptcy.

Key Differences Between Chapter 7 and Chapter 13

  • The primary benefit offered by Chapter 7 is near-guaranteed debt reliefDebt ReliefDebt relief is defined as the process of complete or partial forgiveness of debt taken on by individuals, corporations, or nations, with the goal of stopping or slowing debt growth and providing relief to the debt taker.read more. On the other hand, the offerings of Chapter 13 are related to benefits on secured debt. For example, Chapter 13 stops foreclosure proceedings so debtors who have fallen behind on their mortgages can catch up over time without the danger of losing their homes.Everyone isn’t eligible for Chapter 7 bankruptcy. If the income level goes below a certain extent, the case would be eligible. Chapter 13 bankruptcy is much more complex and takes more time than Chapter 7 bankruptcy found that 29% of bankruptcy is Chapter 13 bankruptcy. In contrast, most bankruptcy cases, i.e., around 71%, are Chapter 7 bankruptcyUnder Chapter 7 bankruptcy, you can only keep exempt property, which creditors protect under federal law. You must give your non-exempt property to the bankruptcy trustee, who can sell it and distribute the proceeds to your creditors. In Chapter 13 bankruptcy, you don’t have to give up any property. Instead, you repay your debts out of your income. However, that doesn’t mean that you could keep more property if you had filed bankruptcy under Chapter 7.

Chapter 7 vs Chapter 13 Comparative Table

Final Thoughts

The two main bankruptcy options available for people overrun by consumer debt are Chapter 7 and Chapter 13 bankruptcy. Both are also allotted on repayment amounts that the debtors should pay to their creditors.

Since Chapter 7 has stricter rules for re-filing, people who have filed for bankruptcy were forced to opt for Chapter 13 in the last few years. After receiving a Chapter 7 discharge, debtors are barred from receiving another Chapter 7 bankruptcy for eight years, but they would only have to wait four years to file under Chapter 13. If the debtor’s earlier case gets dismissed, there would be no time limit.

This has been a guide to Chapter 7 vs. Chapter 13 Bankruptcy. Here we discuss the top differences with infographics and a comparative table. You may also have a look at the following articles for gaining further knowledge in Corporate Finance –

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