A common question asked by clients is what is the differences between a Chapter 7 Bankruptcy case and Chapter 13 Bankruptcy case. The simple answer is that a Chapter 7 bankruptcy case is a type of liquidation while a Chapter 13 bankruptcy case is a type of reorganization. There are other differences also.
What is a Chapter 7 bankruptcy case?
Chapter 7 bankruptcy cases are the shortest cases lasting approximately 4 months. In a Chapter 7 bankruptcy case you must pay your fees and expenses before your case can be filed. Most bankruptcy attorneys will work out a payment plan that will allow you to get the relief that you need. Your bankruptcy lawyer has no discretion when it comes to filing your case without payment in full of the expenses and fees. The bankruptcy court requires bankruptcy lawyers to collect their Chapter 7 fees before a case can be filed. Otherwise, your bankruptcy attorney becomes one of your creditors and is prevented by law from collecting any remaining fees.
Even though your Chapter 7 bankruptcy fees must be paid in advance, Chapter 7 is the cheapest form of bankruptcy available. In addition, Chapter 7 is the easiest type of bankruptcy case to file.
Will I Lose Everything I Own If I File Chapter 7?
No, filing a Chapter 7 bankruptcy case does not mean you will lose your property. An experienced bankruptcy lawyer can tell you whether you are at risk of losing any of your property. Approximately 99% of all bankruptcy cases filed are deemed “no asset” cases. That means that there are no assets for the Chapter 7 Trustee to sell for the benefit of unsecured creditors. If you have equity in your assets that you cannot protect with liens and your exemptions, your attorney will recommend that you file a Chapter 13 case if you are eligible to file a Chapter 13.
What is a Chapter 13 bankruptcy case?
A Chapter 13 bankruptcy case is sometimes referred to as “Debtor's Court.” Chapter 13 cases last a minimum of 36 months and a maximum of 60 months. In Chapter 13, you make a payment to the Chapter 13 Trustee each month. Generally, your bankruptcy filing fee, and the majority of your attorney fees, are paid from the money you pay to the Chapter 13 Trustee each month. Most bankruptcy courts have a range of fees that they will approve for the filing of a Chapter 13 bankruptcy case. Chapter 13 fees are usually 2 to 3 times higher than those charged for a Chapter 7 bankruptcy case.
Some of the Benefits of Chapter 13 Bankruptcy
If you have a great deal of equity in your car or house, a Chapter 13 bankruptcy case can allow you to retain your assets while paying the net equity in the items to your creditors over the life of your plan. Chapter 13 bankruptcy cases also allow you to repay your taxes at no interest. Chapter 13 bankruptcy is the only type of bankruptcy that provides protection for a non-bankrupt co-debtor. This relief is limited to debts that are “consumer debts.” Consumer debts include debts incurred for personal or family use. Consumer debts do not include debts incurred for a business purpose.