Know the Difference Between Chapter 7 and Chapter 13 Bankruptcy
By Attorney Christopher Soppe
Chapter 7 Bankruptcy is the most filed chapter of bankruptcy in Iowa, Illinois and Wisconsin. It is a form of debt relief that allows qualifying individuals to discharge their debts and keep most of their assets. This liquidation applies to your unsecured debts. Unsecured debts can include: credit cards, medical bills, payday loans and personal loans. In a Chapter 7, you will be required to submit a petition with all of your financial information, take credit counseling courses, and attend a 341 Meeting of Creditors. Chapter 7 Bankruptcy is a great option for those who don’t make enough money to pay off their debts. Not only are your debts discharged, meaning you are no longer liable for them, but you will be protected by the Automatic Stay while your case is pending. The Automatic Stay bars your lenders from collecting on your debts.
Chapter 13 Bankruptcy is a chapter of bankruptcy that allows the filer to reorganize some or all of their debts into a payment plan specifically calculated to work within their budget. In a chapter 13 you can save your home from foreclosure, make up back mortgage payments, and it is all within a repayment plan that is curtailed for you to afford. If you have an unincorporated business, you may continue to operate your business but include the business’ debts in your plan. A trustee will oversee your case and administer payments to your creditors. As long as your case is active, i.e., you stay current on your payments, you will be shielded from your creditors by the Automatic Stay. Creditors may not garnish your wages or bank accounts, or repossess your home or vehicle until your case is discharged or dismissed. The length of your payment plan depends on your income relative to the state median for your family size. It is typically between 3-5 years.
Now what is the difference. The simple answer is that a Chapter 13 reorganizes your debts into a payment plan, while Chapter 7 simply clears away many types of debts. However, Chapter 13 allows for payments of debts that aren’t addressed in Chapter 7, like familial obligations and some taxes. Chapter 7 bankruptcies typically only last 4-6 months, while a successful Chapter 13 will always last 3-5 years.
We know this process can be overwhelming. Call our attorney today to figure out which plan is best for you and your family.