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What are the Differences Between a Chapter 7 and Chapter 13 Bankruptcy?

 


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Most individuals that need to seek help under the bankruptcy code will do so under either Chapter 7 or Chapter 13 bankruptcy. While the two different codes vary greatly in terms of what happens, how it happens, and how long it takes to complete the bankruptcy; the ultimate outcome remains the same, a clean financial slate for an honest debtor that has fallen on hard times.

Chapter 7 bankruptcy is often called a liquidation bankruptcy because the debtor will have to turn over their non-exempt assets to the bankruptcy trustee. The trustee will in turn sale or liquidate those assets in order to payoff the creditors on a priority status. The assets that are exempt vary from state to state and can be quite generous. With the proper planning and use of a person’s exemptions many Chapter 7 bankruptcies become no-asset cases, or a bankruptcy in which the debtor keeps all of their possessions throughout the bankruptcy process.

A Chapter 13 bankruptcy is more similar to that of a Chapter 11 bankruptcy. Most people have heard the term Chapter 11 reorganization on the news or in the papers referring to a corporation that has gone bankrupt. During a Chapter 13 bankruptcy the debtor and their bankruptcy lawyer will develop a repayment plan. This is the most complex part of a Chapter 13 bankruptcy and needs to be done with great care. The repayment plan will take place over the course of three to five years. A quick summary of how monthly payments are derived is as follows: Take you monthly income and subtract out all of the debtors fixed secured debt payments (mortgage, auto loan, etc). Then you subtract out a reasonable and allowable monthly living expense (food, clothing, gas, etc. ). The money that is left over is called disposable income and will be used to pay the debtors unsecured creditors. Generally speaking at the end of the repayment plan, the remaining unsecured debts will be discharged by the Bankruptcy Court.

As you can see, there are glaring differences between Chapter 7 and Chapter 13 bankruptcies. Before choosing which chapter of bankruptcy is best for you, you should first speak with a bankruptcy lawyer . Deciding which type of bankruptcy to file for is much more complex and should be done with the counsel of an experienced bankruptcy attorney . To schedule a free consultation with a Texas bankruptcy law firm , vist our website.

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