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What is the difference between chapter 7 and chapter 13 bankruptcy?


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2011-10-16 21:50:39
2011-10-16 21:50:39

Clearly, you should consult an attorney to get more details, but this will cover the basics for you, for your information and education only. Please consult your attorney. That being said...

CHAPTER 7:

In general, a chpt 7 is used for eliminating your unsecured debt (credit cards, unpaid medical bills, etc). You will not pay your secured debt (house, car, boat, etc) through the bankruptcy. You will have a few options as to how to handle these secured debts. They are surrender, reaffirmation, and redemption.

Surrender is just that, you give up the property, and once discharged you are no longer liable for that debt. The creditor may not take up collection actions against you.

Reaffirmation is where you attest that you intent to keep the property, and will

continue to be responsible for it. Once the case is discharged, you will still be help liable for the debt, and if the vehicle is repo'd and sold, you are still responsible for any deficiency balance.

Redemption is a court-sanctioned cash settlement option, normally an appropriate number to offer is the NADA or KBB value of the car. There are companies out there who are in the business of refinancing BK redemptions.

Before 10/17/2005 (the date the new Bankruptcy reform act went into effect, there was an option of retain current in which you intend to keep the car, but if you default an any point in the future and the car is repo'd and sold, you are NOT help responsible for the debt. This is no longer a legal option, but many people still list this intention. Since this is not an acceptable intention, the stay will lift during the bankruptcy, allowing the creditor to take possession of the car if they choose to do so (default in payments).

Once you are discharged from the case, you are done; normally takes 4-6 months.

CHAPTER 13:

In general, a chpt 13 is used to help protect your property from repossession or foreclosure. Normally, a 'dividend to unsecured creditors' will be determined, which can be anywhere between 0% and 100%, depending on your discretionary income after living expenses are accounted for.

Regarding secured claims, there are options on how you pay those debts through the chpt 13, surrender, direct pay, or trustee pay.

Once again, surrender is where you would give up your car in the BK, and upon discharge, you are not responsible for the debt and no collection actions may be taken against you.

Direct pay is where you would continue to pay the debt directly to the creditor, generally in the same way you paid before. If you become delinquent, the creditor must get court order to repossess the car.

Trustee pay is when you pay your BK payment, and out of these funds, the trustee sends the court ordered payment to the creditor. Now, normally, if your car was bought less 910 days before the BK was filed, you must use the full balance owed as the secured amount, although a reduced interest rate may normally be allowed. If, on the other hand, more than 910 days have elapsed since you bought your car, you may use the retail value of the car as the secured amount, and any overage in the debt (if you owe more than the car's value') is treated as if it were an unsecured credit card debt.

Generally, the court will allow time for the trustee and creditors to review and object to your chpt 13 plan, then if there are no objections, the plan is confirmed. This normally takes roughly 6 months, maybe more or less. After confirmation, you make your trustee payments for anywhere from 36 to 60 months, during which time you pay the trustee your BK payment, or it's taken from your paycheck, and the creditors receive payments from the trustee.

After you have completed your payments, the court discharges you from any further responsibilities in the BK.

There are many finer points, so please check with an attorney.

Related Questions

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There is a big difference between chapter 7 and chapter 13 bankruptcy. Generally speaking, chapter 13 bankruptcy is a type of Reorganization bankruptcy. It filing a plan with the bankruptcy court suggesting how you will repay your debt. Some debts must be repaid in full while others require only a percentage or nothing at all.

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Chapter 7 is debt elimination and is the more severe form of bankruptcy. Chapter 13 is where a repayment schedule is drawn up and you still payoff your debts.

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The difference between the types of bankruptcies have mainly to do with whether the filing is for an individual or a business. There are two types of bankruptcy for individuals. Those are Chapter 7-by far the most commonly filed form of bankruptcy and Chapter 13-which is more of a debt consolidation type of bankruptcy. Both have various positives and negatives. The article below goes into the specifics of Chapter 7 vs Chapter 13.

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Chapter 7 bankruptcy is the most popular and common type of personal bankruptcy.Chapter 13 bankruptcy is the king for protection of real estate and other secured property.Chapter 11 is mostly used by the business who needs to restructure the debts.

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To somewhat oversimplify: Chapter 11 is "reorganization" for Corporations or a business, & Chapter 13 is a very similar thing for people. Debts and life are paid off/down and things re-organized. Chapter 7 is flat-out, busted-broke bankruptcy - out of business, not a penny left.


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