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Differences between Chapter 7 and 13 bankruptcy filings

Florida residents thinking of filing for personal bankruptcy might like to know the difference between a Chapter 7 and a Chapter 13. The majority of people select Chapter 7 instead of Chapter 13. In fact, for 2015, of more than 800,000 personal bankruptcy filings that occurred during 2015, almost two-thirds were Chapter 7 and about one-third was Chapter 13.

Under Chapter 7, a debtor’s non-exempt assets are liquidated by the trustee and used to repay creditors. Much of the remaining unsecured indebtedness is liquidated. Automobiles that are secured by loans and homes that are secured by mortgages can be kept if the past due balances on those loans are paid in full if the debtor signs an agreement promising to continue to make payments. Otherwise, the collateral is surrendered and the balances are discharged.

Chapter 13 is designed for people who have a regular source of income. It provides for debts to be repaid pursuant to a court-approved plan that lasts from three to five years. It offers a homeowner a good way to bring a mortgage current. Under such a plan, all secured debt is paid in full.

It is not unusual for people to suddenly become overwhelmed by their financial obligations. An unexpected job loss or medical emergency can throw a wrench into people’s lives. Filing for bankruptcy is one way to get a measure of debt relief, and it puts at least a temporary stop on collection activities and creditor harassment. There are a variety of eligibility and other requirements, such as mandatory credit counseling, that a lawyer can outline.

Source: The News-Gazette, “John Roska: How Chapter 7, 13 bankruptcies differ”, John Roska, April 17, 2016

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