What are the main differences between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy? Sometimes, it helps to peel the onion back, layer by layer, and go back to the basics. What are the primary differences between a Chapter 7 and Chapter 13 Bankruptcy? We will leave the question of which one you should file for a different day.
If you boil it down to the nub, in a Chapter 7 Bankruptcy you make no payments back to your creditors, in a Chapter 13 Bankruptcy you do make payments back your creditors. Now, let’s dig a little deeper.
In a Chapter 7 Bankruptcy, the focus is on your assets, are they exempt and protected or are they non-exempt and the bankruptcy trustee will sell them, collect money, and disburse those proceeds to your creditors pro rata. In the vast majority of cases, debtors have no non-exempt assets. Everything the debtor has is exempt or protected. Thus, when the process is over, your liability on your debts is “discharged” or wiped out, and you get to keep all of your assets.
In a Chapter 13 Bankruptcy, the focus is not on your assets, it is on your income and expenses. You make payments back to your creditors over the course of a minimum 36 month plan or a maximum 60 month plan. The payment you make is based primarily on the difference between your net income and what is left over after you pay your reasonable and necessary expenses. You get to live! Whatever amount of debt that remains unpaid at the end of the plan, is “discharged” or wiped out.
In both a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy, the debts that get “discharged” or wiped out get wiped out, tax free!
With the above said, the vast majority of debt is not disputed or contingent. It is fixed. Most guests don’t have any real dispute about the debt they owe. I signed a contract for a credit card and I incurred the debt. Period!