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Chapter 13 and Chapter 7 bankruptcies are different

On Behalf of | Dec 29, 2021 | bankruptcy |

Debt might reach a point where paying off obligations appears impossible. A Maryland resident may look at bankruptcy laws for protection. Exploring bankruptcy reveals different categories, and filers may go through Chapter 7 or Chapter 13. Significant differences separate these two options, and the debtor might not have a choice about what category to file. However, both Chapter 7 and Chapter 13 could help someone suffering from financial misfortune.

Chapter 7 vs. Chapter 13 bankruptcy

The starkest difference between Chapter 7 and Chapter 13 is the payment plan component of the latter. Chapter 7 bankruptcy involves liquidating assets to pay certain debts. The remaining debt, barring exempted debts, faces a discharge. Debtors no longer have obligated to creditors of discharged debt.

Chapter 7 bankruptcy involves meeting a means test. Those who do not mean the criteria for Chapter 7 could explore Chapter 13, which involves meeting obligations to a payment plan lasting from three to five years. Usually, a person cannot “pass” the means test due to too much income or excessive debt that Chapter 7 cannot discharge.

Additional differences between Chapter 7 and Chapter 13

Many differences exist between the two bankruptcy chapters. With Chapter 13, debts may be reduced, and some debts not dischargeable under Chapter 7 could face a discharge under Chapter 13. Again, Chapter 13 requires completing a payment plan that lasts several years, but Chapter 7 proceedings could end in a few months.

There’s another point worth noting. If someone’s financial situation worsens and making Chapter 13 payments becomes too difficult, revisiting the means test is an option. The debtor could potentially switch from Chapter 13 to Chapter 7.

No matter which type of bankruptcy someone pursues, collection action stops. Debtors gain a chance to explore a potentially less stressful way to restart their financial situation.



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