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What is the Difference Between A

Chapter 7 and Chapter 13 Bankruptcy?

Work with a Trusted South Florida Bankruptcy Attorney
To Decide If A Chapter 7 or Chapter 13 Bankruptcy Would Be Best For You

CHAPTER 7:

A Chapter 7 bankruptcy is usually filed where the client has:

  • too much unsecured debt (i.e. credit card debt, medical bills, personal loans, etc.) which they cannot afford to pay off or, with the minimal payments they are making, will be paying on for years to come; or

  • been served with a lawsuit over a debt; or

  • been sued over a debt and is now facing a wage garnishment and cannot affford to have money garnished from their wages.

  • had a home foreclosed or vehicle repossessed and is now being sued for a "deficiency claim" (the amount still owed to the creditor after the creditor sold the property).

 

A Chapter 7 Bankruptcy is generally used to wipe out (i.e. "discharge") unsecured debts.

In a Chapter 7, you :

  • keep and repay any secured debts (i.e. home loans, car loans, furniture loans, jewelry loans, etc.) that you want to keep; and

  • wipe out (i.e. "discharge") any unsecured debts (i.e. credit cards, medical bills, personal loans).

  • you no longer owe anything on debts that are wiped out (discharged) in a Chapter 7.

  • Also, if you have any secured debts (home loans, car loans, furniture loans, etc.) that you do not wish to keep, you can simply "surrender" them in your Chapter 7 and get out from under the debt! However, there is a good likelihood that the creditor will come pick up the property that you surrendered (or allow you to drop it off if you prefer).

  • Another advantage of surrendering a secured debt (that you no longer wish to keep) in a Chapter 7 is that the creditor loses it's ability to later sue you for any "deficiency claims"!

    • Normally, if a person who does not file for bankruptcy has a vehicle repossessed or home foreclosed, the creditor takes back the property and later sells it at auction. Then, if the creditor doesn't sell it for at leas the amount you owe the creditor on the property​, the creditor sues you for the difference (i.e. the "deficiency" amount)!

    • BUT, on the other hand, if the person were to file a Chapter 7 bankruptcy and "surrender" the property in the bankruptcy, the creditor gets the property back, but loses their right to sue you for any deficiency claims!

CHAPTER 13:

A Chapter 13 bankruptcy is usually filed where clients:

  • are facing a foreclosure and want to keep their home; or

  • are dealing with a vehicle repossession and they need to keep their vehicle; or

  • owe taxes and cannot afford to pay the amounts being demanded by the IRS; or

  • make too much money to qualify for a Chapter 7, but still has bills they cannot afford; or

  • have too much equity in their property to file a Chapter 7.

In a Chapter 13, you :

  • Keep and repay any secured debts (home loans, car loans, furniture loans, etc.) that you want to keep; and

  • Repay any unsecured debts (credit cards, medical bills, personal loans) at a certain percentage (which is often as little as 1-2%) as payment in full; and

  • Repay any taxes owed (often times repaying older taxes (at least 3 years old) at pennies on the dollar)!

When you file a Chapter 13, a "Chapter 13 Plan" is filed wherein we set out how we are proposing to repay your debts.

Then, while you are in your Chapter 13 Plan, you make monthly "plan payments" to a "Chapter 13 Trustee" and, out of your monthly payments, the Trustee then makes payments to your creditors for:

  • your ongoing monthly mortgage payments (if you are keeping a home through the 13)

  • your mortgage "arrears" (any missed mortgage payments that you owe)

  • your car payments (if you owe them)

  • payments towards any back taxes owed (if you owe them)

  • payments towards back alimony/child support owed (if you owe them)

  • payments towards any unsecured debt you may owe (they usually get repaid at a very small percentage as payment in full)

Then, at the end of your Chapter 13 plan:

  • your mortgage payments are caught up to date (and you go back to making your regular monthly mortgage payments)

  • any vehicle loans are paid off

  • any taxes are paid off

  • any child support/alimony is paid off

  • all your unsecured debt is done!

The decision whether to file a Chapter 7 or Chapter 13 bankruptcy is, often times, a complicated one and you should consult with an experienced South Florida Bankruptcy Attorney. We can advise you on the pros & cons of both Chapters and develop a plan to both protect your property and provide you with the debt relief you are seeking!
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