The biggest difference between the two is the repayment of your debt. A repayment plan where a portion of your debt is to be repaid will be ordered by the court in a Chapter 13 bankruptcy. With a Chapter 7 bankruptcy, there is no repayment plan and certain debts can be eliminated entirely and you are no longer required to pay them back. So your first thought may be... Chapter 7... then I don't have to pay anything back. Well, there are other things to consider.
Very rarely will the court take your car or home in a Chapter 7 bankruptcy but if you have equity in your home or investments, a Chapter 7 bankruptcy can liquidate these and any other assets.
There is also what they call a Means Test with Chapter 7. It's main purpose is to catch those people who have sufficient income to repay their debts and don't truly need the relief granted in a Chapter 7 bankruptcy. It also prevents people from running up credit card bills, making frivolous purchases, with no intent in paying for them.
With a Chapter 13, you are repaying a reduced percentage of your debt based on what you can afford to pay to your creditors. It also forces your creditors to accept the repayment plan set by the bankruptcy court. Obviously, this will only work if you have a set income, which is required to file this type of bankruptcy.
A great advantage is that Chapter 13 allows you to keep any assets you may have such as large amounts of equity in your home, investments, etc...
Both plans can give you relief from overwhelming debt and give you a new financial start.
I am participating in a blogger campaign by Bucks2Blog for bankruptcy california and was compensated. However, the views and opinions are my own.
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