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What's the Difference Between Chapter 7 & 13 Bankruptcies

Chapters 7 & 13 of the United States Bankruptcy Code both offer solutions to help get rid of your debts, but they do so in entirely different ways. Below you’ll find a guide to the differences between both Chapters 7 and 13, and hopefully have a better understanding of which one may be able to help you regain financial freedom.

Before looking at the differences, however, there is one thing they have in common. Once the bankruptcy is filed, “automatic stay” is put into place to ensure that no creditor actions are made against you to collect on debts or obligations while the bankruptcy is being completed.

Chapter 7

Bankruptcies under Chapter 7 are commonly referred to as “straight” or “liquidation” bankruptcies. This chapter is the quickest form of bankruptcy that can help you permanently rid yourself of a multitude of debts at once.

Chapter 7 is also best suited to those individuals who have little to no disposable income, or those whose income is lower than the median income in Connecticut.

While there are types of property that are considered non-exempt from liquidation, there are certain things that you are able to keep for yourself during the liquidation process:

  • Necessary clothing, bedding, food, household furniture
  • Any type of property required to perform one’s profession
  • Welfare payments
  • Payments from health/disability, worker’s compensation, social security, and veteran’s unemployment

Once all of the non-exempt property has been turned over, the discharge of eligible debts can then begin. Here is a list of some of the most common debts that can be discharged under Chapter 7:

  • Credit card debt
  • Medical debts
  • Civil judgments
  • Past-due rent from an old lease
  • Personal unsecured debts

    There are also debts that are considered non-dischargeable by Chapter 7. These include:

    • Alimony/child support
    • Student debts
    • Personal injury debts by driving under the influence
    • Certain past-due taxes
    • Criminal restitutions

    If you believe you have too many debts to handle on your own, filing for Chapter 7 bankruptcy may be able to help. Contact us today through our website or give us a call at (203) 774-3332 for more information!

    Chapter 13

    Chapter 13 bankruptcies differ greatly from those under Chapter in that it does require the liquidation of assets.

    This Chapter is commonly referred to as the “reorganization” chapter of bankruptcy and allows you to extend the amount of time you’ve been given to pay off your debts.

    Chapter 13 bankruptcies do take longer to complete, sitting around 3-5 years, as opposed to Chapter 7’s 4-6 months to complete. The reason for this is because it allows you the time you need to pay off your outstanding debts without liquidating your assets.

    As the debtor, you would be making a monthly payment to a bankruptcy trustee that will distribute your payments to the proper creditors. This amount is usually determined by the difference of subtracting your living expenses from your take-home pay.

    Reasons you may want to file for Chapter 13 include:

    • The ability to maintain possession of your property
    • Saving your home from foreclosure
    • Discharging some of your debts, and paying back less than you previously owed
    • Deferring tax debts and student loans
    • Stopping creditors from taking action against you throughout the life of the bankruptcy

    The biggest benefit of Chapter 13 is being able to take care of your finances in a way that only benefits you. Chapter 13 gives you the precious time you need to make sure you pay off your debts and eliminate them for good.

    If you have an overwhelming amount of debts, but you aren’t sure if bankruptcy is right for you, we also have experience in a number of bankruptcy alternatives that you can learn more about here!

    Contact our Connecticut Bankruptcy Team Today

    At LaRese Law, we understand the stress and financial fatigue that can come with filing for bankruptcy. We aim to disavow the negative stereotypes of bankruptcy and provide a simple and efficient approach to getting you that much closer to the debt-free life.

    If you believe bankruptcy could be the right option for you, don’t hesitate to contact us today through our website or give us a call at (203) 774-3332!