Chapter 7 and chapter 13 bankruptcy are the most common chapters chosen by individuals. To choose the one that is best for you, it is important to understand the key differences between chapter 7 bankruptcy and chapter 13 bankruptcy.
In this short video by the Law Offices of B. David Sisson, you'll learn more about the two key differences between chapter 7 and chapter 13 bankruptcy, including how assets are treated and repayment plans.
Assets in Chapter 7 & Chapter 13 Bankruptcy
In chapter 7 bankruptcies, assets must fall under either federal or state exemption. Assets that do not fall under the proper exemptions are liquidated to pay debts. Those debts are specifically ordered. Many chapter 7 bankruptcies are considered no-asset cases, meaning the creditors receive nothing.
In chapter 13 bankruptcies, debtors keep their assets instead of having excess assets that do not fall into an exemption liquidated. Chapter 13 is an excellent choice for individuals or married couples who need to file bankruptcy and who want to keep their assets. However, to file for chapter 13, you must have the disposable income to pay off some of your debts. Again, though, you will be allowed to keep your assets.
Repayment Plans in Chapter 7 & Chapter 13 Bankruptcy
Chapter 7 bankruptcy does not involve a repayment plan. Even if chapter 7 is labeled as an asset case, it does not involve a payment plan. The assets are liquidated and sold to pay the debts.
Chapter 13 bankruptcy requires a court-approved repayment plan. Once it is approved, your disposable income is used for up to 5 years to make payments to the trustee. The trustee distributes payments to your creditors. Secured and unsecured creditors receive a percentage of what they are owed.