One of the most common questions asked is what is the difference between the types of bankruptcy. When people want to know what the difference is between types of bankruptcy, they really mean “What is the difference between Chapter 7 and Chapter 13?”
Both Chapter 11 bankruptcy and Chapter 13 bankruptcy are reorganizations that provides for a repayment plan of some or all of a person’s debt. Chapter 11 is for corporations or for individuals who owe a lot more money than most people do, so usually it isn’t for “regular people”.
Chapter 13 is the repayment bankruptcy that is normally considered by most consumers. A big misconception is that people in a Chapter 13 repayment bankruptcy is that have to repay everything. They don’t. Chapter 13 isn’t always a full repayment plan, and may reduce substantially what is paid to certain creditors like credit cards and medical bills.
In general, Chapter 13 debtors pay what they can afford to pay to their unsecured creditors, after they have paid their living expenses. Chapter 13 can also help stop foreclosures, and give people up to five years to catch up missed mortgage payments.
Chapter 7 is not a repayment plan. In Chapter 7 bankruptcy, you “throw in the towel” and walk away from your unsecured debts. Chapter 7 debtors don’t have any money left over after paying for their ongoing living expenses, so they don’t have money to make a payment in Chapter 13. In exchange, Chapter 7 debtors only get to keep property that is protected by law, or using bankruptcy language: exempt. For many people, all their property is exempt. Chapter 7 debtors often get to keep their homes, cars and all or a lot of their personal property. Laws vary from state to state, but don’t assume that you will loose all your property if you file for bankruptcy.
The best way to understand the differences between the types of bankruptcy, and how they affect you is to consult a lawyer near you who can explain how bankruptcy works, and whether or not it is an option you should consider.
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