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Chapter 7 or Chapter 13: What You Should Pursue

Chapters 7 and 13 of the United States Bankruptcy Code are two of the most common types of bankruptcy that are filed by consumers. Though their primary goals are to help their filers gain relief from their debts, their processes to achieve this goal are very different. Below, our Hawaii bankruptcy team provides a guide to how these chapters differ from each other, as well as the benefits they carry.

What They Have in Common

One resource that both Chapter 7 and 13 bankruptcies (along with every other chapter) offer what is called “automatic stay”. This is the process that makes any and all collection actions by a creditor illegal, giving the filer the time and peace of mind they need to complete their bankruptcy.

Chapter 7

Chapter 7 is known as the “straight” or “liquidation” chapter of bankruptcy. This chapter is one of the quickest ways of eliminating multiple types of debts and allows for certain assets to replace monetary payments in order to cancel out any obligations.

This chapter is normally meant for debtors that have an overwhelming amount of a variety of debts that can be eligible for discharge.

Once the non-exempt assets are turned over, qualifying debts can then be discharged. Here is a brief list of some of the most common debts that can be discharged by Chapter 7 bankruptcies:

  • Credit card debt
  • Medical debt
  • Personal unsecured debts
  • Past-due rent from an old lease
  • Debts arising from civil judgments

Though there are many types of debts available for discharge, there are certain types of debts that cannot be discharged by bankruptcy. Here are some examples of non-dischargeable debts under Chapter 7:

  • Alimony/spousal support
  • Child support
  • Student debts
  • Criminal restitutions
  • Certain past-due taxes

One of the biggest advantages to filing under Chapter 7 is, as previously stated, it is the fastest chapter of bankruptcy for consumers. Taking around 4-6 months to fully run its course, it allows debtors to eliminate all eligible debts permanently and gain the fresh start they have been looking for.

Chapter 13

Chapter 13 is known as the “reorganization” chapter of bankruptcy, whose main goal is to restructure a debtor’s payments and create a plan that can be paid off easily without the liquidation of assets. This chapter takes about 3-5 years to complete, giving filers an ample amount of time to make their new payments.

Payments under a Chapter 13 plan are usually determined by the difference of subtracting one’s living expenses from their take-home pay. These payments are made to an appointed trustee that is responsible for distributing these funds to the proper creditors in need of reimbursement.

There are many benefits to filing under Chapter 13 that cannot be found in Chapter 7. Some of these benefits include:

  • Extending the life of payments to prevent falling further behind
  • The ability to maintain ownership of your property
  • Possibly saving your home from foreclosure
  • Preventing repossessions
  • Paying back less than you originally owed, while also receiving a discharge
  • Deferring tax debts and students

Apart from the time it takes to complete each chapter, the biggest difference between Chapters 7 and 13 is that Chapter 7 utilizes the liquidation of assets to pay off debts, while Chapter 13 does not.

With large amounts of debt, Chapter 7 may be more useful to get as much debt out of the way as possible in a short amount of time. Adversely, Chapter 13 utilizes a longer lifetime to allow filers to catch up on all their missed payments while still maintaining possession of their property.

Contact our Hawaii Bankruptcy Team Today

We understand how overwhelming the need to file bankruptcy can be. Through a compassionate and personalized approach, we do our best to ensure you find your best path to financial independence.

If you would like to learn more about how bankruptcy can get rid of your debts, contact us today through our website or give us a call at (808) 518-4844 to schedule your consultation today.