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What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcies?

Large amounts of debt are stressful and looking for ways to find relief from debt can make things even more difficult. Even if someone decides to file bankruptcy, there is still another choice to be made - which chapter to pursue. There are several key differences between bankruptcy’s two main chapters, Chapter 7 and Chapter 13, and our Los Angeles bankruptcy team tells you everything you need to know below.

Chapter 7

Once you have filed for bankruptcy under Chapter 7, an “automatic stay” will be put into place which prevents all creditors from harassing you about your debts or attempting to collect from you. It is work noting that this benefit is also available to filers of all other bankruptcy chapters.

Chapter 7 is often known as a “straight” bankruptcy or “liquidation.” Chapter 7 is the most common form of bankruptcy, as well as the quickest, taking around 4-6 months to complete. Chapter 7 bankruptcies are designed for those with large amounts of unsecured debts with little to no disposable income.

While many bankruptcy filers may not have to liquidate their assets at all, there may be times where it becomes necessary. Once any unexempt property is turned over, the debtor is then entitled to a discharge, or elimination, of their debts. Here is a list of debts available for a discharge through a Chapter 7 bankruptcy:

  • Credit card debt
  • Medical debt
  • Personal unsecured debts
  • Civil judgments
  • Back rent from an old lease

Among these, there are several debts that are unable to be discharged by Chapter 7:

  • Alimony and/or child support
  • Student debts
  • Certain taxes
  • Attorney fees in child custody/support cases
  • Court fines and penalties
  • Criminal restitutions

If you notice that your debts amount to more than half of your total annual income, contact our firm today at (213) 344-0043 to schedule a free consultation.

Chapter 13

Chapter 13 is commonly known as the “reorganization” chapter of the United States Bankruptcy Code. This Chapter takes longer than a filing under Chapter 7, taking around 3-5 years, but in turn, granting filers far more time to catch up on their finances.

There are several key benefits associated with Chapter 13 bankruptcies including:

  • Saving homes from foreclosure
  • Protecting property from liquidation
  • Discharging some debt while paying back less than originally owed
  • The ability to defer tax debts and student loans
  • Halting creditor harassment and collection

Chapter 13 provides the filer the chance to restructure their current payment plan and extends the life of their payments to keep them from falling further into debt. With a new and improved plan, filers then make a new monthly payment to a bankruptcy trustee that is determined by the difference of subtracting living expenses from their take-home pay.

As long as payments are upheld, filers under Chapter are able to fulfill their financial obligations to set themselves up for long-term success.

Contact Our California Bankruptcy Team Today

It is important to act quickly when dealing with large amounts of debts. The best way to make sure your chances of financial freedom remain uncompromised is by contacting the experienced team of bankruptcy attorneys at Resnik Hayes Moradi LLP.

If you would like to learn more about how bankruptcy can help get rid of your debts, don’t hesitate to contact us today through our website or give us a call at (213) 344-0043 to schedule your free consultation!