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Why does Chapter 13 take longer than Chapter 7?

Before filing for bankruptcy, it's important to note that Chapter 13 bankruptcy isn't as quick as the most common type, which is Chapter 7. With a Chapter 7 filing, if all goes as planned, you could be done in a few months. With a Chapter 13 filing, you may not be done for five years. Why is there such a big difference?

To understand why, you just need to know the difference between Chapter 7 and Chapter 13 at the base level. With Chapter 7, assets are auctioned off or liquidated, proceeds are sent to the lender and the debt that remains is forgiven. With Chapter 13, assets are generally retained, a repayment plan is created and then payments are made until the debt has been paid off, not forgiven.

It is this payment plan that can take three to five years, stretching the process out.

Typically, you will not send the payments directly to the lender. Instead, you'll send them to a trustee, who will collect and then provide them to the lender. You're generally responsible for making a single payment each month.

The reason this process is drawn out is that it gives you time to pay. If you owed $100,000 immediately, for example, you may not have had it on hand. However, your business may have been earning enough for you to pay $2,500 per month. With Chapter 13, you get the time to pay so that your business can keep earning.

If you own a business with viable income streams and are facing overwhelming debt, make sure you know your rights to use bankruptcy in Florida.

Source: About Bankruptcy, "What Is Chapter 13 Bankruptcy?," David Haynes, accessed Jan. 29, 2016

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