How Chapter 7 and Chapter 13 bankruptcy differ

Consumers in Shreveport, Louisiana, still file bankruptcy for many reasons to get out of debt they see no way of paying. The top two reasons consumers file for bankruptcy are job loss and medical expenses. They may choose several types, but most consumers choose Chapter 7 and Chapter 13, which differ.

Chapter 7

Chapter 7 bankruptcy helps the consumer remove debt by requiring the selling of non-exempt assets, such as valuable artwork, to pay creditors. Under Chapter 7, debtors must pass a means test to be eligible, which compares their income to the state average for a similar household.

The court assigns a trustee to find property value, manage the sales, and divide proceeds from sales among creditors. Chapter 7 bankruptcy commonly pays secured priority debts first, or debts that are secured with collateral, such as mortgages and vehicle loans.

Certain unsecured debts, such as credit card debt, past due utility bills, and medical bills, may get completely removed. If the consumer has fulfilled all the requirements, they should get a notice of discharge within four to six months.

Chapter 13

Consumers who wish to pay some debt or do not pass the means test under Chapter 7 may file Chapter 13. Chapter 13 bankruptcy pays debts over three to five years under a payment plan approved by the court.

Unlike Chapter 7, consumers do not have to sell assets as long as they make payments to the trustee. However, bankruptcy does not remove liens, so a consumer must stay current on vehicle payments and mortgages to avoid losing the property. If they are behind on mortgages or vehicle payments, they can include them in the payment plan to catch up on debt.

A benefit of all bankruptcy types is the automatic stay, which prohibits collection actions temporarily. Since bankruptcy affects credit scores for several years, consumers should review all of their debt management options.