Do you know the differences between filing Chapter 7 and Chapter 13 under federal bankruptcy law? Both protect filers against all creditor actions, but there are distinctions. Below. the experts compare features of these two bankruptcy options to help you decide whether filing bankruptcy is your best solution for obtaining debt or tax relief.

Chapter 7 & Chapter 13 Bankruptcy Law Distinctions

Chapter 7

Filing bankruptcy under Chapter 7 bankruptcy law gives debtors a fresh start, usually within six months after filing. To qualify, individuals must pass a means test that measures their debt against their income. If the income level is too high, the debtors cannot proceed under Chapter 7 but can file under Chapter 13. Often called liquidation or straight bankruptcy, this plan works well for people with little or limited income and large amounts of unsecured debt, such as credit card, hospital and doctor bills, and personal loans.

Chapter 13

Often called a reorganization or wage earner plan, Chapter 13 gives filers court protection while repaying creditors. Individuals and their attorneys develop repayment plans to submit for court approval. Debtors repay creditors for three to five years under the plans, and at the end, the court discharges any remaining debt. People who have steady sources of income and want to continue paying debts such as home mortgages and car payments often choose filing bankruptcy under Chapter 13 bankruptcy law.

Additional Differences

Filing bankruptcy under Chapter 7 is for individual and business entities, while Chapter 13 is only for individuals, including sole proprietors. Chapter 13 limits the amount of secured and unsecured debt filers can claim, but courts can discharge unlimited amounts of debt under Chapter 7 bankruptcy law.

Brian Kawamoto, Attorney practices tax and bankruptcy law in Aiea, HI. For 25 years he has helped debt-burdened individuals achieve tax relief and financial freedom. Call (808) 486-6107 to schedule a consultation or contact him through his website or Facebook page for more information.