Chapter 7 vs Chapter 13

What are the Differences Between Chapter 7 and Chapter 13?

A Chapter 7 Liquidation Bankruptcy is a very short process.  All of your assets are submitted to the court, and a trustee determines if there is any “equity” – money left over after payment of any secured creditor- that would be available for the benefit of a creditor.  If you cooperate with the trustee, you should get a discharge from most debts in about 90-120 days.

The downside of a Chapter 7 Bankruptcy is that in many cases, a secured creditor, for example a mortgage company, or your car finance company, will want to foreclose or reposes the property if you are behind and do not catch up pretty quickly.  Not in every case, but in many cases. The reason is that they cannot attempt to collect the money from you.  However, they do have a right to enforce the security interest in the property- by foreclosing or repossessing the property.

The upside of a Chapter 7 Bankruptcy is that whether you continue to pay or not, you have no more legal obligation to pay.  Of course, if you fail to pay, they can repossess or foreclose, but they get the house or car, and you get to walk away.

A Chapter 13 Bankruptcy is a longer process.  All of your assets are once again submitted to the court and a trustee determines what “equity” is in property, but then you make payments to the trustee for the next 3 to 5 years.  In that time, you are permitted to cure any default in a loan, like a mortgage or car payment, pay the loan off entirely in some circumstances, catch up on debts that are not dischargeable in a Chapter 7, and some debts that are not dischargeable in a Chapter 7 are dischargeable in a Chapter 13.

The downside of a Chapter 13 is that you must make payments for the next 3 to 5 years to pay or restructure your debts.

The upside of a Chapter 13 Bankruptcy is that any creditor for whom they might want to enforce a security interest- a mortgage company or car finance company- the court approves a plan that allows you to cure any delinquency or default in the loan. NOTE- you cannot force the loan company to take a lesser amount of money in most cases, particularly with regard to your home, or a car that you purchased in the last 910 days (which is roughly 2 ½ years).  NOTE– HAMP modification (Obama plan) is NOT available if you have filed for Bankruptcy.



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Krumbein Consumer Legal Services, Inc.

1650 Willow Lawn Drive

Suite 300

Richmond, VA 23230

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