Bankruptcy: Chapter 7 vs Chapter 13
In Chapter 7 bankruptcy, individuals may discharge their unsecured debt, which includes credit card bills, medical bills and the remaining debt left after a foreclosure or repossession.
Chapter 7 bankruptcies are typically quick and efficient, lasting approximately 5 months. For those unable to make minimum payments, Chapter 7 can be the best way of getting rid of debt. A Chapter 7 bankruptcy does not involve any repayments as long as the individual does not own property with a high equity value. The individual also will not lose any property by filing bankruptcy. Instead, a Chapter 7 often involves just a straight cancellation of debt. Individuals must qualify for Chapter 7 bankruptcy through a means test and Chapter 7 bankruptcy cannot discharge some types of debt, including most tax liability and student loans.
In Chapter 13 bankruptcy, individuals set up a payment plan with their creditors allowing them to pay a portion of their debts over a period of time. The bankruptcy court will examine a debtor's income and expenses, and arrive at a plan that allows the individual to still afford their necessary expenses each month. After the repayment period is over, the remainder of the debt is cancelled.
Chapter 13 bankruptcy is a great option for people who want to hold on to their homes, have unprotected equity from assets or do not qualify for Chapter 7 bankruptcy protection.
