Although the words Chapter 7 and Chapter 13 look like they have been derived from a book, they become exceptionally crucial for an individual going through an inferior monetary stage. When an individual is debt-ridden and unable to repay his loans, he can suggest bankruptcy under one of the two chapters of the Bankruptcy Code. Bankruptcy is a lawful procedure formulated to assist individuals and firms in taking out their debts or paying them under the safety of the bankruptcy court. Bankruptcies are naturally of two kinds which include liquidation and reorganization. As the clauses of Chapter 7 are called out when sealing bankruptcy under liquidation, chapter 13 is utilized in situations of reorganization.
What is Chapter 7?
Bankruptcies indicated under Chapter 7 of the Bankruptcy Code are also described as straight bankruptcies. This chapter is the selected one for many individuals who file for bankruptcy. This has to do with liquidating every one of the individual’s assets and paying back the debts. The court decides on the amount of money forwarded to a specific creditor. Many of the assets of an individual filing for bankruptcy are excused from liquidation. This concerns his vehicles and his home outside every other asset. Liquidation occurs based on the regulations of the state where the person lives. It has not been comfortable filing for bankruptcy using Chapter 7 as some alterations were integrated in 2005. As such, if more debt can be paid back using liquidation of assets, the individual is not qualified to file using Chapter 7. The procedure tenure for filling Chapter 7 is 3 ½ months. During this duration, no payment is needed to be reimbursed to the court. While an individual is filing for bankruptcy, he may need to provide all the validities and data which has to do with the following:
- List of all the expenses done monthly.
- List of all assets which also have to do with the property facts.
- Inventory of the creditors, including their claims.
- Quotations and stakes of debtor’s monthly income.
What is Chapter 13?
As earlier stated, bankruptcy filed using Chapter 13 of the Bankruptcy Code is described as reorganization. In this context, you must inform the court of your strategy as to the methods you present to pay back your creditors. In this pattern, some debts are reimbursed completely, whereas some are partially paid, and others are taken out completely, providing comfort. Another comfort an individual acquires is a long time structure to pay back the debt. Chapter 13 does not require for liquidation of assets. The court determines your reimbursement agenda after listening to your plea. Any person can file for bankruptcy using Chapter 13 because his unsecured debts are lesser. The data needed to be provided to the court is the same as in Chapter 7. A court fee is required while filing for bankruptcy under this chapter.
Difference Between Chapter 7 and Chapter 13
- It is effortless to observe that Chapter 7 and Chapter 13 aim to assist an individual going through monetary problems.
- As the liquidator of assets of the debtor occurs under Chapter 7 to stimulate payback of debts, there is just reorganization using Chapter 13, and the debtor’s assets are protected.
- Bankruptcies filed using Chapter 7 elapse within three months and a half, whereas the debtor acquires an extended time, which may be a year, to repay his debt using Chapter 13.
- Bankruptcy is a critical topic, and one needs to consider all the alternatives before using it in court.