If you’re wondering about the difference between chapter 7 and Chapter 13 bankruptcy, you’re not alone. Many people have heard of the different kinds of bankruptcy are confused about the differences between them. Most people are afraid of bankruptcy in general – it is not the kind of thing that you like to think you need, and most of the information that people get about the different types of bankruptcy comes from their neighbors, friends, and coworkers.
I often find that people come to see me thinking that they know the difference between chapter 7 and Chapter 13 bankruptcy and have already decided which one they think they probably need. Sometimes they are right, but oftentimes they are wrong.
Whenever I counsel someone on debt relief options, I always make it a point to explain the difference between chapter 7 and Chapter 13 bankruptcy because they are different. They are designed to do different things, and interestingly, just because you might qualify for one does not mean that the other might not be a better idea. In fact, regularly have people come to me after seeing another attorney who recommended a Chapter 7 or Chapter 13 bankruptcy only to discover, after I thoroughly examined their circumstances, that the first attorney was wrong and totally overlooked some of the benefits that could be obtained by filing the other chapter.
Since I have been doing this for about 30 years, I have more experience than most in determining the best Chapter to file.
Choosing A Chapter
Chapter 7 bankruptcy is the more commonly file the form of bankruptcy. Most people believe that they would lose property if they filed a chapter 7 bankruptcy. However, this is normally not the case. Chapter 7 bankruptcy is normally filed by people who do not have enough income to afford to pay back even a small portion of their debt. However, this does not mean that they lose property. In fact, most of my clients keep their houses and their cars in the chapter 7 bankruptcy and discharge without any payment whatsoever the medical bills, payday loans, credit cards and other unsecured debt that they have.
Chapter 13 bankruptcy is most frequently used to save homes from foreclosure. But this is not the only use of the chapter 13 bankruptcy. Chapter 13 bankruptcy is a very powerful form of bankruptcy and one that many people, including some attorneys, misunderstand.
Chapter 13 can actually be a much better choice than Chapter 7 even if someone actually qualifies for filing a Chapter 7 bankruptcy. The reasons are many. Sometimes we can pay taxes in chapter 13 for less than we would have to pay in a Chapter 7. The taxes often are not discharged in any kind of a bankruptcy, but they can be paid a lower rate in the chapter 13.
In addition, it is sometimes possible to pay less for your automobile, while you keep the automobile, in a chapter 13. High-interest automobile loans are typically changed into low interest automobile loans in chapter 13. This is not possible in a Chapter 7. In addition, it is sometimes possible to pay less for the automobile than you actually owe on it if you file a Chapter 13.
For example, if you owe $10,000 on a car worth $5000 in a chapter 7, you will have to pay $10,000 for this car if you choose to keep it. Contrast this with the chapter 13, where it is possible that you would only pay $5000 for the automobile as a secured debt and the other $5000 may be discharged and only pennies on the dollar payment. This is a tremendous savings as possible and chapter 13 only. You cannot do this in the chapter 7.
There certain kinds debt that can’t be discharged in any kind of a bankruptcy. Child support, alimony, most taxes, and most of the time student loans cannot be discharged in a Chapter 7 or Chapter 13 bankruptcy.
I think it’s a good idea to do a little bit of research on the differences between the different kinds of bankruptcy before seeing an attorney. But remember, information that you get on the Internet about the different kinds of bankruptcy is general only and may not apply to your specific circumstances. The very best way to find out how the different kinds of bankruptcy apply to your specific situation is to contact an experienced, preferably board-certified bankruptcy specialist.