The difference between Chapter 7 and 13

By Amina Isakovic

The law have changed a lot over the past few years. It used to be that anyone could file for chapter 13 bankruptcy as much as they wanted to. It isn’t that easy anymore. There are many different chapters in the bankruptcy laws, but the two that are the most common are chapter 7 and chapter 13.

To qualify for Chapter 7, the debtor turns over all of their non-exept property, which then gets turned into cash, and distributed to the creditors. This basically is where your house, cars, boats, etc. get taken away from you to be sold to pay off your debt. The debtor then gets excused from all of their debt. This is also called a “fresh start” chapter.

Chapter 13 works a little differently. This is for those individual debtors who want to respectfully pay back their debts, or are able to do so, on a payment plan set up by the U.S. court with the creditors. This debt is paid off in the three to five years. This is most attractive to those people who don’t want to get rid of their property, or have sufficient funds to pay off their debt in this manner.

You have to think very carefully which chapter you would like to file for and realize what you have to deal with in case you decide to file for either. Once you file for Chapter 13, for example, it may take up to two years for you to be able to take out a new credit card while being financially stable. For Chapter 7 you can’t do so for many years. Think carefully which one applies to you, you don’t want to end up filing for the wrong one.

Links:
http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter7.html
http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter13.html
http://www.bankruptcylawnetwork.com/2008/03/23/can-i-take-out-credit-cards-during-my-chapter-13-bankruptcy/