What's the Difference Between a Chapter 7 & Chapter 13?
As bankruptcy attorneys we are often asked about the differences between Chapter 7 and Chapter 13. Chapter 7 basically discharges (or eliminates) all of someone’s debt. Credit card bills and medical bills are wiped-out, as are debts owed because of repossessions and evictions as well as the more common bills that so many people have. However, child support payments, student loans and IRS tax debt are generally non-dischargeable. (In certain circumstances, though, IRS debt and student loans may be eliminated.)
When filing a Chapter 7 the vast majority of people can keep their car and house.
For people who make more money or have greater assets (perhaps they have a lot of equity in their home), there is Chapter 13. Under this chapter of the bankruptcy code, a certain amount of money is paid to the bankruptcy court by the debtor each month (usually for five years, but it can be for a shorter period of time) and the court disburses that money to the creditors. Different people will pay varying percentages of their debt to the court. For example, one person may pay 43 cents on the dollar while another person will pay 68 cents on the dollar. How much is paid depends on each individual’s specific financial situation.
Many people utilize a Chapter 13 to save their home or their car. A Chapter 13 can be used to stop a foreclosure or repossession by putting arrearages (that’s the money that has not been paid but should have been) into the bankruptcy. Then the arrears can be paid-off over 5 years. The person filing the Chapter 13 has to then keep the account current by making all scheduled payments for the car or house. We have seen, for example, people put 18 months’ worth of mortgage payments into the Chapter 13 plan and we have seen people put 8 months of car payments into the plan. So if you are behind on home and car payments, there is hope.
There Is Hope for A Fresh Start
Both Chapter 7 and Chapter 13 give Americans real and lasting legal protection from creditor harassment, lawsuits, foreclosures, repossessions, credit card and medical bills, wage garnishments and having their bank accounts frozen.
Millions of Americans have taken advantage of the bankruptcy laws to get a fresh start they so deserve and to reach for a brighter financial future for them and their loved ones.
Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither the author, handelonthelaw.com, or any of its affiliates shall have any liability stemming from this article.