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The differences between chapter 7 and chapter 13 bankruptcy

On Behalf of | May 18, 2021 | Uncategorized

If debt is overwhelming you, you may be considering filing for bankruptcy. However, there are different types of bankruptcy, and common ones are chapter 7 and chapter 13 bankruptcy.

When you understand the differences between the two, you will be able to make a more informed decision about which one is better for your situation.

Chapter 7

According to the United States Courts, the general purpose of chapter 7 bankruptcy is to give the debtor a fresh start through the discharge of debts. The individual filing for bankruptcy can keep exempt assets, which include tax-exempt retirement accounts and a certain value amount for personal property, but must allow the court to liquify other assets to pay off creditors. After the court discharges the debts, the debtor is no longer liable to pay them.

Although going through chapter 7 results in the discharge of many types of debt, it does not discharge everything. Some things that the debtor is still responsible for paying:

  • Most student loans
  • Child support or alimony payments
  • Personal injury debts that resulted from driving under the influence
  • Criminal restitution debts
  • Some taxes

Chapter 13

According to FindLaw, not everyone qualifies for chapter 7 bankruptcy. For example, if the debtor’s income is above a certain point and there is disposable income, he or she must file for chapter 13 instead. Chapter 13 is also appropriate for individuals who want to keep their assets but need a new, adjusted repayment plan. If debtors are able to repay the loans over a court-approved time period, they can keep their house, car and other property.

Some debts that the court will not discharge in chapter 7 bankruptcy may be eligible for discharge under chapter 13. These include tax debts, HOA fees, marital debts and court fees.