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Important differences between Chapter 13 and Chapter 7

On Behalf of | Dec 17, 2020 | Bankruptcy

Personal bankruptcy is a legal process that lets individuals get out from under overwhelming debt. It is not an easy process, and there are drawbacks to undertaking the various forms of bankruptcy available to Texas residents. However, for many, bankruptcy offers a fresh start and a release from difficult financial circumstances.

The 2 main forms of personal bankruptcy available to individuals are Chapter 13 bankruptcy and Chapter 7 bankruptcy. This post will briefly introduce some of the differences between these two processes, but no part of this post should be read as legal advice. All questions about bankruptcy should be directed to attorneys who support and advocate for personal bankruptcy clients.

Liquidation vs. Repayment

One of the biggest differences that exists between the two forms of personal bankruptcy is how individuals satisfy their debts. Chapter 7 uses liquidation, while Chapter 13 uses repayment plans.

  • In liquidation, a debtor sells off property and the money the raise is used to satisfy their creditors. They are permitted to keep some property through exemptions.
  • Under a repayment plan, a debtor uses disposable income to repay their creditors over time. Individuals who have disposable income may be barred from using Chapter 7 bankruptcy.

Many factors will influence which form of bankruptcy is better for debtors, including their access to income.

Prior bankruptcy filings

A prior bankruptcy is not necessarily a bar to a new personal bankruptcy filing. However, the type of bankruptcy the individual previously secured and the type they wish to pursue in the present can affect each other.

  • After a Chapter 7 discharge, a debtor may have to wait 8 years to refile.
  • After a Chapter 13 discharge, a debtor may have to wait 2 years to refile.

These are only a few of the ways that Chapter 7 and Chapter 13 bankruptcy can vary from each other. Readers can seek the counsel of bankruptcy attorneys to make responsible decisions about their future financial and legal proceedings.