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What is the difference between Chapter 7 bankruptcy, and Chapter 13 bankruptcy?

CHAPTER 7 is a bankruptcy generally used as a means for individuals to completely wipe out most debts in a legal proceeding conducted under the jurisdiction of The U.S. Bankruptcy Court. As a general rule, most Chapter 7 bankruptcy cases are no asset cases wherein creditors do not receive any money as payment for those debts listed in the bankruptcy schedules and the debtor is relieved from any obligation of paying back those creditors.

Under the new bankruptcy law, effective October 17, 2005, there are number of additional requirements to satisfy in order to be eligible to obtain a discharge of your debts in a Chapter 7 Bankruptcy, including passing a means test or income test. For individuals with income too high to pass the means test, you will be required to pay back at least some of your debt in a Chapter 13 bankruptcy.

CHAPTER 13 is a bankruptcy designed for individual debtors who have some regular flow of income seeking an adjustment of debt.

Chapter 13 bankruptcy is used primarily for people with mortgage and maintenance debt, or other secured collateral who wish to keep their assets, yet need time to stretch out these arrears or back payments in a Plan to deal with their creditors. The time frame is generally 36 to 60 months. Chapter 13 bankruptcy may also be utilized to handle debts which are not dischargeable in a Chapter 7 bankruptcy.

CHAPTER 13 bankruptcy may be used for the following scenarios: to handle situations in which individuals may wish to retain their assets, yet pay back their creditors in a more favorable treatment than allowed by their creditors; individuals having a cash flow problem, whereby there is some disposable income available to pay back creditors in whole or in part, but not a sufficient amount to satisfy creditors outside of the bankruptcy process; individuals whose income is too high to pass the means test and may still wish to file for bankruptcy that will provide some debt relief.

CHAPTER 11 is a bankruptcy generally for business reorganization but may be used by individuals who cannot qualify for Chapter 13

A complete bankruptcy office consultation by competent legal counsel will be necessary to determine which bankruptcy an individual(s) qualifies for.

(For more information on Chapter 7 bankruptcy, or Chapter 13 bankruptcy, please click the “Bankruptcy” link on the navigation bar at the top).