If you need a solution to your financial problems and have explored all bankruptcy alternatives and decided that these options are not appropriate for your situation, you might want to find out the differences between chapter 13 vs chapter 7 bankruptcy.  If this is your case please read on as this article will outline the main differences.

Bankruptcy is a legal process available to people who have serious financial problems and are no longer able to pay their bills.  Depending on the type of bankruptcy you file or qualify for, you will either be required to pay all or some of your debts or be released from all or most of them.

Chapter 13 Bankruptcy

This is a legal arrangement in which you pay all or some of your unsecured financial obligations free of interest and late charges through the court trustee over a period of 3 to 5 years.  Your creditors must abide by the terms of this plan and cannot collect from you.  You must have a steady source of income to qualify for chapter 13.  If you are behind on your mortgage this plan may stop your creditor from foreclosing your home by allowing you to consolidate your mortgage arrears with your other debts and make payments to the court while making your regular mortgage payments to your creditor.

Are you behind on your car payments?  This plan also may stop your creditor from repossessing your car by consolidating the late payments and the remaining balance with the rest of your debts.

Chapter 7 Bankruptcy

Because of a new bankruptcy legislation effective October 2005, very few people qualify for Chapter 7 since your income must be lower than the average income in your state.  Nevertheless, under this plan most if not all, types of unsecured debts are eliminated.  You may be required to liquidate your assets to satisfy your debts, but in some cases your attorney may try to exempt certain assets.

These are the main differences between chapter 13 vs chapter 7 bankruptcy, however there are certain debts that cannot be discharged through bankruptcy including student loans, child support, alimony, and income taxes.

Bankruptcy Disadvantages

  • The record of your filing will stay with you for 10 years.
  • It is a matter of public record, thus you have no privacy.
  • The court is in control.
  • The court determines your monthly payments according to allowable living expenses based on IRS schedules, not based on your actual living expenses.
  • You have to appear in court.
  • It is a complicated process and it is recommended that you hire an attorney.

Because of its long term damaging effect and some privacy issues, bankruptcy should be the last debt relief option you should seek.  If after exploring other debt elimination alternatives you determine that this is your only option,  you should consult a  bankruptcy attorney so he can guide you through all the confusing stages of this complex process and inform you about the detailed differences of chapter 13 vs chapter 7 bankruptcy.