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The important differences between Chapter 7 and Chapter 13

People in Eastern Tennessee who are contemplating filing for bankruptcy know that they must choose between Chapter 7 or Chapter 13 of the Bankruptcy Code, but they may be unsure of the differences in the two procedures. A complete explanation of the differences would not fit in this blog, but knowledge of the important differences between Chapter 7 and Chapter 13 can lead to a reasoned choice.

While both Chapter 7 and Chapter 13 are intended to deal with personal bankruptcy, the most important difference between the two chapters is the end result: a chapter 7 bankruptcy is intended to discharge all of the claims against the debtor, whereas a Chapter 13 bankruptcy is intended to buy time for the debtor to reorganize his or her financial affairs and formulate a reorganization plan that will extend the deadlines for paying creditors. Not every person is eligible to seek relief under Chapter 7; if a person's income exceeds the limit known as the "means test" the person is limited to seeking relief under Chapter 13.

Under Chapter 7, a debtor will lose all property that is not exempt from attachment or liquidation by creditors. Under Chapter13, the reorganization plan will allow the debtor to keep certain important assets, such as an automobile or home. A Chapter 13 bankruptcy will not result in the complete discharge of existing debts, but a thoughtful reorganization plan can permit the debtor to reduce payments to creditors, such as a credit card balance or medical debt.

Both procedures share the benefit of the automatic stay. The automatic stay is a court order that goes into effect when the bankruptcy petition is filed. The stay is in effect a court order that stops all collection actions by all creditors until the bankruptcy proceeding is completed. The stay can provide time for a debtor to renegotiate the terms of repayment on important debts such as a mortgage loan.

Choosing between Chapter 7 and Chapter 13 can be a challenging task. The advice of an experienced bankruptcy attorney can be very helpful.

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