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Differences between Chapter 7 and Chapter 13 Bankruptcy.

Updated: May 2, 2023

In previous blogs we explained what a Chapter 7 and Chapter 13 Bankruptcy consisted of. In today's blog we are going to be talking about the main differences between the two chapters, so that you can make the right decision about which one will give you the most benefits.

The first difference between the two chapters lies in the elimination of debts. A Chapter 7 bankruptcy case involves the elimination or discharge of any qualified debt, such as credit card debt, in exchange for all assets of a person or business, which the law does not allow them to keep. This means that when you file a Chapter 7 bankruptcy, all your debts (those that qualify) will be forgiven. In a Chapter 13 bankruptcy, this is different. During the Chapter 13 procedure, what the debtor tries to do is reorganize and reduce the amount of his debts, but he will not eliminate them. Another big difference is who is qualified to present the different chapters. In the case of Chapter 13 bankruptcy, only a natural person can apply for it. In the case of Chapter 7, both companies and individuals can apply. Also, people who file for Chapter 7 generally must not have monthly disposable income and there are limits on the amount of debt that people who file for Chapter 13 can have.

The processing time in both chapters is usually different. In Chapter 7 cases, the estimate for obtaining a debt discharge order is 3 to 6 months. Chapter 13 cases take much longer and generally take 3 to 5 years to complete.

As briefly mentioned above, in a Chapter 7 case, the bankruptcy administrator, trustee, can take and sell all the non-exempt property of a person or business. A major difference between these two chapters of bankruptcy is that in a Chapter 13 the trustee cannot sell your property, but you must pay your creditors the value of any property that is not protected by law.

Chapter 7 does not allow you to eliminate liens, loans or debt that are guaranteed to be paid by your property, that is, secure debts, such as your home or car debt. However, this option is available in Chapter 13 if certain requirements are met. Similarly, your ability to reduce the amount of a loan or debt secured by your property is limited in Chapter 7, not in Chapter 13.

The main benefit of a Chapter 7 is that a person can quickly eliminate qualifying debt and begin to rebuild their credit history. The main benefit of Chapter 13 is that a person has the opportunity to catch up on their car or mortgage payments. The problem with filing a Chapter 7 is that the trustee can take and sell any unprotected property to pay off your creditors. The biggest problem with a Chapter 13 filing is that normally the debtor must make monthly payments for 3 to 5 years before his debts are forgiven.

If you need help with your bankruptcy process, give us a call, the first consultation is free. In Y. Morejon Attorney, P.A. We practice different areas of law such as: immigration, family, bankruptcy, foreclosure, general civil, among others. Trust us to help you with your legal problem. In Y. Morejon Attorney, P.A. your problem is our problem.

Legal Disclaimer Any information made available by the lawyer or law firm is for educational purposes only, as well as to give you general information and general understanding of the law, NOT to provide specific advice. This does NOT create a relationship attorney-client between you and Y. Morejon Attorney, P.A. This information should NOT be use as a substitute for competent legal advice from a licensed professional attorney in your state.

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