Bankruptcy Differences Between Chapter 7 and Chapter 13
Chapter 7 bankruptcy allows you to discharge all of your unsecured debt (like credit cards), and choose to have secured debt (mortgage, car loans, etc.) discharged as well. But not all people qualify for a Chapter 7 bankruptcy. There are a variety of other reasons that a person may choose not to file a Chapter 7.
( A Look Ahead: Why File Chapter 13 if you can file a Chapter 7)
Chapter 13, What does it offer?
Chapter 13 bankruptcy replaces your original obligation to pay debts with a repayment plan which you submit to the Bankruptcy Court for approval. Under a Chapter 13 Bankruptcy, you and your bankruptcy lawyer prepare a Chapter 13 Plan, which is your proposal to the Court and your creditors for repayment of all or a major portion of your unsecured debt. You may also include your proposal to catch up on your mortgage payments, property and income taxes, or any other secured loan.
Chapter 13 bankruptcy can usually be filed at any time, as long as it represents a good faith effort to repay your debt or a portion of your debt within your means and within an appropriate period of time (usually 36 or 60 months). This means that you must be able to show that you are able (have enough income or financial resources) to repay your debt as proposed. You must show that your plan to repay your debt is feasible. Contact a bankruptcy attorney to advise you about feasibility and Chapter 13.
Benefits to Chapter 13:
Even if your Chapter 13 Plan proposes to repay 100% of your unsecured debt and all of your secured debt (or get and stay current on mortgage, car loans, etc.) within the time allowed, you still reap benefits from Chapter 13. One such benefit is that the interest and fees on unsecured debt (credit cards and the like) stops at the moment of filing. In other words, the balance you owe as of the date you file your Chapter 13 Bankruptcy Petition is all you need to repay. In some cases you would only repay a major portion of that debt. In 3 years or 5 years, (whichever applies) you will have all of your unsecured debt paid off, and you will be able to keep your secured assets. This may not be possible outside of Chapter 13, in many cases. (Read more on Chapter 13)
It stands to reason that this blog can not answer all of your questions, nor can it offer legal advice. You should consult with a bankruptcy lawyer about your individual situation, needs and concerns.