What is the difference between chapter 7 & chapter 13?
CHAPTER 7:
Chapter 7 is often referred to as "straight bankruptcy". In a Chapter 7 proceeding you are relieved from the responsibility to pay your debts ("discharged"), with certain exceptions. In exchange for having your debts wiped out, you must give up any property that is not protected or “exempted” from the chapter 7 trustee. The property that you exempt is free from the claims of all your pre-bankruptcy creditors. If you have nonexempt assets that are worth more than any loans on the property, the trustee can sell them to pay on your debts. In more than 90% of the cases that we file, all of our client's property is exempt, so the client gives up no property. Such cases are called "no asset" cases because no assets are turned over to the trustee. More detailed explanations of the exemptions and "exceptions to discharge" are set out below.
CHAPTER 13:
Chapter 13 is often referred to as a "wage earner plan." The concept behind a Chapter 13 bankruptcy is that you and your spouse, if any, make sufficient income to pay all of your current living expenses (e.g., rent, food, utilities, transportation, clothes, etc.) and have some money left over to apply to your debts. You submit a Chapter 13 Plan in which you set out a budget detailing your take-home pay and monthly living expenses. You pay the excess income to the bankruptcy trustee who then pays the money to your creditors. The plan lasts for at least 36 months unless your debts are paid in full in a shorter time. The payment period may be extended beyond 36 months (but not over 60 months), if you need the extra months to pay enough on your debts to have the plan approved by the Court. At the end of the chapter 13 plan, any amounts still owing on your unsecured debts are forgiven. In certain cases, chapter 13 allows us to lower the amount of your loans or give you a lower interest rate on certain loans. If you have a secured loan like a mortgage, deed of trust, or car loan that you are behind on, chapter 13 allows you to catch up the amount you are behind over time. Chapter 7 does not offer this option.
