The differences are many, but the primary difference is that that chapter 7 is a “straight” or “liquidation” bankruptcy and chapter 13 is structured debt repayment plan. I describe each chapter in detail in my website. Click here to read about each one: Chapter 7 and Chapter 13.
Chapter 7: A debtor does not enter into a repayment plan in chapter 7. Instead, the bankruptcy Trustee will review the debtor’s financial circumstances to see if there are any assets that can be liquidated (ie, sold) and the proceeds paid to creditors. Additionally, the Trustee may seek to set aside certain types of transactions that occurred prior to filing, such as preferences and fraudulent transfers.
Chapter 13: In contrast, a chapter 13 Trustee generally does not liquidate a debtor’s assets, nor seek to set aside pre-bankruptcy transactions. Instead, the debtor makes monthly payments to the Trustee for 3-5 years. The Trustee distributes the monthly payments to creditors. A chapter 13 can help a debtor avoid a foreclosure by making payments to catch up past due mortgage payments. It can also impose a payment plan on the IRS or the NC Department of Revenue (I practice in NC) and stop tax garnishment. Each chapter has its “pros” and “cons”. A bankruptcy specialist can talk with you about the best chapter for you.
At Kight Law Office, we have represented parties in over 2000 bankruptcy cases before the WNC Bankruptcy Court. Attorney and Bankruptcy Specialist Rod Kight has consulted with literally thousands of individuals about chapter 7 and chapter 13. Contact us today and complete our free online bankruptcy evaluation to discuss which chapter will best solve your financial problems.