Bankruptcy Blog
Differences Between Chapter 7 & Chapter 13
by on 12/11/2012
When considering filing for bankruptcy, you need to understand that there are several types of bankruptcies, often referred to as chapters. The various bankruptcy chapters can be found under Title 11 of the United States Code. Deciding what chapter works best for your situation can be a complicated process. Finding an experienced bankruptcy attorney to help you through this process can be invaluable.
The two most common chapters filed by consumers are Chapter 7 and Chapter 13. Chapter 7 is best described as a “liquidation” bankruptcy, whereas a Chapter 13 is a “reorganization.” A consumer who files for Chapter 7 is, in most cases, finished with the bankruptcy process in three months, while a Chapter 13 bankruptcy could last up to 5 years.
Another way to look at these two chapters is by what the trustee will do in the case. A trustee is a person who is assigned to review your case and to fulfill certain duties in that case. In a Chapter 7, the trustee is going to determine, among other things, if you have any assets that could be sold to pay down some, or all of, your debt. Each state has a different set of rules for protecting your assets, known as exemptions (the states we work in, California and Nevada, each have their own exemptions). Most Chapter 7 cases, if prepared properly, can protect your assets from being sold. A Chapter 13 trustee on the other hand, is not interested in selling your assets, instead he or she takes a monthly payment from you that is used to pay down your debt, based on a plan you propose and is approved by the court.
Chapter 13 cases are much more complicated than Chapter 7 cases and it is highly recommended that you have an experienced Chapter 13 attorney help you through this process. Statistically, a high percentage of Chapter 7 cases filed without an attorney are dismissed within the first few months. However, do not let the complexity steer you away from considering a Chapter 13; there are some amazing things you can do, such as decrease the amount you have to pay on your car from the balance owed to the current market value, significantly lower the interest rate you are paying on your vehicle loan and other secured loans, completely eliminate your second mortgage, and pay off tax debt interest-free. These are just a few of the options available in a Chapter 13 that are not available in a Chapter 7.
The most important thing to remember is bankruptcy is not a one-size-fits-all. Filing bankruptcy is a huge decision that should be taken only after obtaining competent legal advice. The experienced attorneys with Bankruptcy Law Group offer a free initial consultation were we will listen to your situation and help you to understand what options are available to you.