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The Differences between Chapter 7 and Chapter 13 Bankruptcies

There are two common types, known as ‘chapters’ of bankruptcy, Chapter 7 and Chapter 13. The decision to choose one over the other is based on the particular circumstances of the debtor, like whether the debtor will be able to pay some debts or none at all. Bankruptcy implies that the debtor cannot pay, and will not pay, most unsecured debt, such as credit cards or medical bills. On the other hand, debts such as home mortgages or car loans must be paid if the debtor wants to keep the car or house. Other secured debts, like student loans or taxes, must be paid in full no matter which bankruptcy chapter a debtor files. The main difference between Chapter 7 and 13 Bankruptcies is the fact that Chapter 13 allows the debtor to repay what he or she owes through monthly payments, while the Chapter 7 involves a single repayment using the debtor's assets.

Chapter 7 Bankruptcy

Generally, a debtor can qualify for Chapter 7 bankruptcy if his or her monthly income is not enough to pay any debts, after accounting for necessary living expenses such as rent or mortgage payments, food, clothing, transportation (gasoline, car insurance, and maintenance) and other basics. In Chapter 7, the Trustee (a person in charge of representing the interests of the creditors) can take assets away from the debtor, but only if those belongings have a certain value. In some states the value of the assets that the debtor is allowed to keep is quite high, and the overwhelming majority of Chapter 7 debtors do not loss any asset to the Trustee during the bankruptcy process.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves monthly payments for a period of three to five years. The monthly payment amount depends on how much is left of the debtor's monthly income after discounting living expenses. In most Chapter 13 cases, the debtor doesn't have to pay unsecured debts in full, only a portion of them. However, in Chapter 13 bankruptcies, the Trustee has no authority to remove any asset from the debtor.

Filing bankruptcy can be a very stressful process, so it is best to find out as much as you can, and hire a great team to help you through the process. If you are in the Columbus, Ohio area, the law office of Semons & Semons can assist you in deciding what is right for you.


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