Difference Between Chapter 7 and Chapter 13

The difference between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy in consumer cases

Originally, Chapter 7 was designed to wipe out debts, while Chapter 13 provided an alternative to repay debts with a cloak of protection provided by Federal Courts. Because partial repayment plans in Chapter 13 allow discharge of remaining balances owed at the end of plan term, Chapter 13 now provides much greater flexibility for retaining non-exempt collateral, delaying repayment of past due amounts, and eliminating debts. But this greater flexibility comes at a cost, including income requirements, court supervision during the plan term, and restrictions on living expenses.

Comparing the difference between Chapter 7 and Chapter 13
	Chapter 7	Chapter 13
Benefits of Chapter 7
Future debt payment required?	no	yes
Proof of income required?	no	yes
Monthly administration fee to trustee required?	no	yes
Court supervision of monthly living expenses?	no	yes
Automatic stay stops foreclosure temporarily?	yes	yes
Selectively retain collateral?	yes	yes

Limitations of Chapter 7
Credit Report potentially reflects "full payment"?	no	yes
Foreclosure because of past due mortgage payments prevented?	no	yes
Repossession because of past due car payments prevented?	no	yes
Potential to retain non-exempt property?	no	yes
Reorganize taxes owed to the IRS?	no	yes
"Cram down" liability to collateral value?	no	yes

When comparing the difference between Chapter 7 & Chapter 13, be aware that many debtors choose Chapter 13 to prevent the loss of assets through foreclosure, repossession, or seizure by the IRS. Then, once these important items are repaid, many debtors choose to convert their case to Chapter 7 and discharge remaining, non-priority, unsecured debts without further payment. Also be aware the right to convert a Chapter 13 case to Chapter 7 is subject to compliance with specific provisions of the Federal Bankruptcy Code.

Strategic use of the difference between Chapter 7 and Chapter 13

All debtors are unique because of financial history, assets owned, and future goals. The assistance of a personal bankruptcy expert is essential to gain the maximum benefit through strategic use of the differences between Chapter 7 & Chapter 13. All options are not available to debtors. Specific qualification will be reviewed by a trustee and the Court in all cases, and additionally subject to creative objections filed by creditors and parties in interest. Also consider the cost of defending objections compared to the value of benefit gained. All qualified personal bankruptcy lawyers should be able to provide this analysis accurately, and insure maximum use of all Code provisions for their clients.