WHAT IS THE DIFFERENCE BETWEEN CHAPTER 7 AND CHAPTER 13 BANKRUPTCY?
The end goal of Bankruptcy Services Of Arkansas & Oklahoma is to protect your assets from being claimed by creditors when you are unable to pay back what you owe. However, there are different approaches to it as laid out below and on other pages in the above menu.
The two types of bankruptcy that most people will be concerned with are Chapter 7 and Chapter 13. The main difference between filing for bankruptcy under Chapter 7 or Chapter 13 is an applicant’s income level. Only those who have an income level that falls within a given bracket can file for Chapter 7 bankruptcy. It is often much simpler to file for Chapter 7 and it usually takes a shorter time. About 70% of people file for Chapter 7 bankruptcy compared to Chapter 13 bankruptcy applications.
Here is how those who file under the two Chapters are treated in regard to specific debts.
Car loans and mortgages are two debts that are treated very differently. A person filing under Chapter 7 will most likely have to give the asset back to the creditor or make arrangements to pay its wholesale value. Under Chapter 13, an applicant would most likely be allowed to keep the asset if they can keep to a payment schedule set by the court.
With debts owed because of crimes committed, a Chapter 7 bankruptcy applicant will most likely not be discharged if the creditor raises an objection and can provide proof of criminal activity such as a court conviction. Under Chapter 13, a debtor will be required to pay back at least a portion of what they owe but the balance could be cancelled if it has not been paid by the time Chapter 13 bankruptcy ends.
With amounts owed for alimony, student loans and child support, the debt cannot be discharged or escaped under Chapter 7. Under Chapter 13, even if these debts have not been paid at the end of the bankruptcy period, they are still payable.
In regard to what is owed in non-support divorce debts and property settlement or agreement, the debt is not cancelled if the creditor or spouse raises an objection under Chapter 7. This is unless the applicant can demonstrate that they not be able to pay after bankruptcy or the advantage of discharging the debt is greater than the detriment it would cause the creditor. Under Chapter 13, the debts that are still due at the end of bankruptcy are cancelled.
With co-debtors on personal loans, Chapter 7 allows creditors to seek payment from the co-debtor but under Chapter 13, creditors cannot do so while the bankruptcy plan is in effect.
With non-exempt valuable property, it has to be surrendered under Chapter 7 unless a debtor pays the trustee fair market value for it or exchanges it for exempt property of equal value if the trustee is agreeable. Under Chapter 13, a debtor keeps their nonexempt valuable property.
In situation where a debtor wants to pay a creditor so that they can keep secured property, the payment can be of wholesale value in a lump sum under Chapter 7. Under Chapter 13, an applicant can pay the replacement value with interest over the duration of bankruptcy.
Where an applicant files under Chapter 7 but their income level is high enough for them to file under Chapter 13, the court may dismiss their case or convert it to a Chapter 13.
When you’re filing bankruptcy, it is critical to understand your legal rights. The attorneys at Bankruptcy Services of Arkansas & Oklahoma personally meet with every client for the initial consultation to determine the appropriate course of action with FREE consultations and offer affordable payment plans.
Bankruptcy Services Of Arkansas & Oklahoma focuses on Consumer and Business Bankruptcy Law under Chapter 7 of the U.S. Bankruptcy Code. We serve Northwest Arkansas and Eastern Oklahoma. Our law offices are conveniently located in Fayetteville, Arkansas, and Stilwell, Oklahoma.
To schedule a free and confidential strategic planning session with a bankruptcy attorney, please call Bankruptcy Services Of Arkansas & Oklahoma.
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