what is the difference between chapter 7 and chapter 13 bankruptcy

These days, the bankruptcy process has become more common than you think. Until a few years ago, it seemed as if this was a dirty word, but today many people or corporations choose this way out when faced with pressing situations. The process of filing for bankruptcy is not easy and can have many consequences. That is why it is important to have all the information to make a decision. And one of the most frequently asked questions is what is the difference between Chapter 7 and Chapter 13 bankruptcy. Both are bankruptcy mechanisms that have their peculiarities.

Making the decision to file for bankruptcy is not an easy one and cannot be made lightly. You must know that, in many cases, the consequences can last for years, so it is necessary to have the security to do so. Then, it is also extremely important to decide how to do it. There are basically two options for this: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Each one applies to different situations and has particular forms and procedures.

In this note, we will answer the question about what is the difference between bankruptcy of chapter 7 and 13. For that, we will begin by explaining each of these options in detail. In this way, with the information on the table, we can reach conclusions about which is the most convenient for each case. 

Chapter 7 bankruptcy

Chapter 7 bankruptcy is often referred to as a Liquidation or Discharge. It is a legal process framed in the federal laws of the United States, which can be applied to both companies and individuals. The purpose of this rule is to eliminate the debts that the person or entity has acquired in a considerable period of time. The cancellation of debts means that you can continue with your life without carrying that weight on your back. Once bankruptcy is filed, the debts will be removed from your credit load.

Before we get to know the difference between Chapter 7 and 13 bankruptcy, we will review the requirements of Chapter 7 in order to make the comparison.

Chapter 7 bankruptcy requirements

It is important to note that Chapter 7 applies to both individuals and businesses. But, in addition, it is necessary to meet certain requirements established by law, in order to be framed within this section.

Advantages of Chapter 7 bankruptcy

Just as there are certain requirements, there are also some benefits to this process. That will allow us to see what the difference is between Chapter 7 and Chapter 13 bankruptcy more fully. Among the main advantages of Chapter 7 bankruptcy can be mentioned:

Chapter 13 bankruptcy

Chapter 13 bankruptcy is commonly referred to as “vested wages”. It turns out to be an excellent solution for many people who are in debt and cannot meet their obligations. The fundamental objective of this section is to establish a series of payments over time, in order to face the payment of debts legally declared in bankruptcy. In this way, it is possible to pay in a relatively long period, without losing the properties acquired. 

Before learning about the difference between Chapter 7 and Chapter 13 bankruptcy, we need to review a few more issues about Chapter 13. In particular, we will see what the requirements are for filing bankruptcy under this legal framework.

Chapter 13 bankruptcy requirements

Chapter 13 bankruptcy is an excellent tool for people in a difficult financial situation. However, there are certain requirements to be met in order to be ordered under this legal form:

Advantages of Chapter 13 bankruptcy

Also in the case of Chapter 13, there are certain benefits for those who qualify under this law. To know the difference between Chapter 7 and Chapter 13 bankruptcy, it is helpful to review these advantages and compare them with those already discussed in the previous chapter:

So what is the difference between Chapter 7 and Chapter 13 bankruptcy?

As we can see, there are many characteristics for each article of the law. We can conclude what is the difference between Chapter 7 and 13 bankruptcy from the comparison of both. In general terms, the main difference is that under Chapter 7, the judicial authority can take a property from you (with some exceptions) to sell it and cover your debts. Instead, in the form of Chapter 13, a payment plan is established whereby all of the debt will be paid off over time. In other words, the Chapter 7 solution is more short-term, which allows a quick credit recovery, but at the cost of losing a property. Instead, with Chapter 13, the solution is more long-term.

In both cases, an important advantage is that the processes of claims, embargoes or lawsuits are interrupted. That is, creditors must abide by the judge’s decision and may not take actions that harm the debtor from the time the bankruptcy is filed.

I already know the difference between Chapter 7 and Chapter 13 bankruptcy, but which one is right for me?

Knowing the differences that exist between both chapters, it is possible to choose the one that best suits the characteristics of each person. It is important to clarify that you cannot always choose, since the requirements are different and impose certain restrictions. For example, if you have high monthly income, it is not possible to establish yourself under Chapter 7, instead you can in Chapter 13.

While you already know the difference between Chapter 7 and Chapter 13 bankruptcy, this does not make you an expert on the subject. Therefore, it is always advisable to consult with a trained and experienced attorney, so that the presentation of your case is as correct as possible. This will allow you to get the best result, the most convenient for you, and in the shortest amount of time. The professionals will evaluate your particular case to establish in which chapter you qualify and carry out the best strategy to accommodate your finances and your economy.

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