The Difference in Chapter 13 Bankruptcy
Chapter 13 is a popular form of personal bankruptcy and is often compared with Chapter 7, another popular choice. Both bankruptcy methods appeal to people suffering from excessive debt due to job loss, illness, divorce and other reasons. Chapter 7 and Chapter 13 offer people a chance for a fresh start as they eliminate or reorganize their finances. However, while the fundamental objectives are similar, there are many differences between Chapter 13 and Chapter 7.
Other People Are Reading
-
Income
-
Those filing for Chapter 13 bankruptcy have no income restrictions. Chapter 7 has strict income limits that are set by individual states, and generally only people with low incomes qualify. That is a major reason why many people file for Chapter 13. A couple earning $80,000 may file for Chapter 13 along with entertainers and athletes earning millions.
Timeline
-
Chapter 13 takes much longer to complete than Chapter 7. Chapter 7 is the fastest form of personal bankruptcy with completion possible in three or four months. That's much different from Chapter 13, which requires a court-ordered payment plan lasting three to five years. Chapter 7 is faster because it is known as a "straight" bankruptcy for purposes of liquidating non-exempt assets to pay off debts. Chapter 13 focuses on reorganizing debt while paying as much as possible to creditors.
-
Oversight
-
Chapter 13 gives the bankruptcy court full control over your finances for years because of the payment plan, while Chapter 7 does not require such oversight. Some people in Chapter 13 bankruptcy drop out of the program due to the emotional toll over the three to five years. The bankruptcy court has control over their expenses and income and can dictate how much the person or family is allowed to spend on living expenses. Chapter 13 participants must report changes in income, with raises often used to pay more money to creditors.
Costs
-
Filing fees for Chapter 13 are less than for Chapter 13. As of 2011, the filing cost for Chapter 7 is $299 and $274 for Chapter 13. Attorney fees for Chapter 7 are usually less expensive because the process is shorter. A person filing for Chapter 7 usually needs assistance from an attorney for just a few months, while a person in Chapter 13 may consult with an attorney multiple times over three to five years. Also, those who cannot afford an attorney may receive free assistance from local legal aid charities. However, the organizations typically provide legal help only for quick Chapter 7 cases. Free legal help is usually not available for Chapter 13.
-
