Q: What's the difference between Chapter-7 and Chapter-13 bankruptcy?

A: The main difference between Chapter 7 and Chapter 13 is that, under Chapter 7, your debts are immediately discharged, whereas under Chapter 13, you enter into a partial repayment plan for three or five years. Why would anyone choose Chapter 13? Well in most cases, they don't. Under the new bankruptcy law, you are not allowed to file Chapter 7 if your income exceeds the median (average) of your state.

Another difference between Chapter 7 and Chapter 13 is that, under Chapter 7, you may have to forfeit some of your property to satisfy your debts. Every state has its own exemptions, and if the values and/or types of property you own do not fall under your state's exemptions, your creditors can force you to sell it in order to receive the proceeds, pro-rated amongst your creditors. In practice this is rarely done, especially under the new bankruptcy laws, since most people who declare Chapter 7 do not have enough property to exceed their exemptions.

Under Chapter 13, you get to keep all of your property, and another advantage is that a Chapter-13 bankruptcy is wiped off your credit report faster than a Chapter 7. Successfully completed Chapter-13 plans are stricken from your records seven years after they begin, whereas Chapter-7 bankruptcies remain on the filer's credit report for ten years.

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