Difference Between Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 and Chapter 13 Bankruptcy

A person who is not able to pay his debts usually files for bankruptcy. Chapter 7 and chapter 13 are the two types of bankruptcy that are normally filed by persons who have failed to settle their debts.

Chapter 7 bankruptcy can be considered ‘straight bankruptcy,’ while chapter 13 is considered ‘re-organisation bankruptcy.’

Chapter 7 bankruptcy relates to the liquidation or selling of personal properties for the settlement of outstanding debts. However, there are also limitations to the liquidation process. For example, homes are protected under the Homestead protection. When filing chapter 7 bankruptcy, you are telling the world that you have no other option but to sell your valuables. It is also a proclamation that you are not reliable for any future credit. This means that it could be difficult for persons filing chapter 7 bankruptcy to get home mortgages, car loans or credit cards in the future.

Chapter 13 bankruptcy means restructuring the debts after negotiating with the creditors for paying the dues in instalments of four to five years. When filing chapter 13, you have no fear of losing your valuable property. The only thing is that you might have to pay some extra money for the settlement reached between you and the creditor. Unlike chapter 7, the credit score is not affected when filing chapter 13 bankruptcy, as you do not lose any valuable property. Moreover, you are not telling the world that you are not paying the debt but have only sought some restructuring.

It is generally better to file for Chapter 13 bankruptcy than it is to file for chapter 7, as this does not lead to a loss of your valuable properties and does not impact your credit score, and future access to credit.

Summary

1. Chapter 7 bankruptcy can be called ‘straight bankruptcy’ and chapter 13 can be considered
‘reorganisation bankruptcy.’
2. Chapter 7 bankruptcy relates to the liquidation or selling of personal properties for the settlement off outstanding debts. Chapter 13 bankruptcy refers to the restructuring of debts after negotiations with the creditors. This restructuring leads to instalment repayments over a period of four to five years.
3. When filing chapter 7 bankruptcy, you are telling the world that you have no other option but to sell your valuables. It is also a proclamation that you are not reliable for any future credit.
4. Unlike chapter 7 bankruptcy, the credit score is not affected when filing for chapter 13 bankruptcy as you do not lose any valuable property.

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