What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

Bankruptcy is a difficult decision that's often wrought with emotion, but it can provide debtors with significant relief and a financial fresh start. Most people facing bankruptcy opt for one of two types of personal bankruptcy: Chapter 7 or Chapter 13. It’s crucial to know the difference between the two types of personal bankruptcy. Our Los Angeles bankruptcy attorney can help you decide which is right for you.

In Chapter 7 bankruptcy, a trustee will liquidate your assets to pay your debt. Any amount of debt that remains will be discharged. Some of your property will be considered exempt. Bankruptcy exemptions can include a percentage of the equity in your home, some of your household goods or family heirlooms, and other personal property. In order to qualify for Chapter 7, you’ll need to pass the IRS means test, which means that your income must not exceed a predetermined limit. If it does, you will need to file a Chapter 13 petition instead.

A Chapter 13 bankruptcy allows you to retain your property, and you will formulate a plan to repay all or part of your debts over the course of three to five years. Your plan will include allowances for monthly living expenses, and the remainder will go towards paying your debts, including anything you owe for back taxes, child or spousal support, and secured and unsecured debts. Once your payment plan has been completed, any remaining debts will generally be discharged, although you will still be responsible for taxes and domestic support payments.

The primary differences between Chapter 7 and Chapter 13 petitions are the income limits and how they proceed. In a Chapter 7 filing, property is sold to pay debts, and most remaining debts are discharged. In a Chapter 13 filing, a payment plan is instated, and once it is completed, most remaining debts are discharged.

Ultimately, filing for personal or business bankruptcy can be an extremely complex proceeding. For this reason, the advice of our experienced bankruptcy lawyer in California can be invaluable as you begin this journey.

Source: Los Angeles Bankruptcy Attorney

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