Home Tips + Advice What’s the Difference Between Chapters 7 and 13?
Tips + Advice

What’s the Difference Between Chapters 7 and 13?

Crossroads: Bankruptcy or CounselingBankruptcy can be an excellent legal relief method for anyone needing a new financial start. The process can also be complicated and will always require an experienced bankruptcy attorney to navigate you through the necessary processes. There are also some unnecessary tasks that can be avoided with the proper legal advice. According to DebtPayPro, one of the largest providers of bankruptcy software for lawyers, the Chapter you choose depends on the specifics of the filing. Therefore it is important to understand that bankruptcy filings are as unique as any other civil case, and the best path for one individual may not be effective for the next. The general primary chapters of personal bankruptcy are 7 and 13 and have very different uses.

Chapter 7 Bankruptcy

This is the primary legal filing for individuals who have unsustainable debt, but have very few assets. This particular chapter provides for a creditor to file for Chapter 7 protection, but the court determines whether the creditor actually qualifies for relief. These debts will be sustained and the petitioner will be required to pay at least a portion of the debt on an established timetable. The timetable also restricts the creditor from contacting the bankruptcy petitioner until the assigned period is expired. It is always a good idea to be diligent in meeting the payment schedule, especially if the petitioner is interested in reestablishment of a positive credit rating. Always be honest and reasonable when committing to these requirements. The schedule is a legal ruling and can be problematic if not met.

Chapter 13 Bankruptcy

This particular chapter of bankruptcy is specifically designed to allow a petitioner to retain their home. It is especially effective for those filers who have considerable equity in their home and have not re-financed the mortgage. Receiving a loan against the equity in a home is always risky, and has created multiple problems for many mortgaged homeowners. The individual that owns the mortgage note owns the home technically, but significant equity clearly applies in favor of the debtor. This is also particularly effective for individuals who have major unsecured debts, but have a significant income and reportable cash flow to schedule or dismiss payment of the unsecured debts.

Debt Levels

There is a discreet dollar amount assigned to qualifications for these particular chapters of bankruptcy. Chapter 7 bankruptcy is for simple cases and any approved “means-tested” petitioner will be required to complete training with an assigned credit counselor. Individuals qualified to choose Chapter 13 will need unsecured debts below $360,475 and a secured debt level less than $1,081,400. The chapter is determined by the qualified financial status of the petitioner.

Bankruptcy proceedings are very serious and have an active effective date for 3-7 years, depending on the particulars of the proceeding. It is also an excellent legal avenue to a fresh start for those who are virtuous and honest in their actions to satisfy old debts legally and proceed to rebuild their personal credit. Credit ratings are important in the contemporary world and many creditors know that in this volatile time of the global economic equation. Active compliance with the process can be a positive. Always contemplate this action seriously and find a good and effective bankruptcy attorney.

Photo credit: http://www.flickr.com/photos/86530412@N02/8225379965/

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