Difference Between Chapters 7 and 13 Bankruptcy
Generally, debtors who have a valuable asset, such as a home, that
is not completely covered by exemptions and that they wish to keep,
prefer chapter 13. This is possible because under Chapter 13 a debtor
proposes a plan to repay creditors over a three to five year period
during which the debtor can make up overdue payments on any assets and
pay into the plan the equivalent value of any assets not covered by
exemptions. Since the debtor’s plan will require regular monthly or
biweekly payments, Chapter 13 is usually only appropriate for an
individual debtor who has a regular source of income.
At a confirmation hearing, the court either approves or disapproves the
plan, depending on whether the plan meets the Bankruptcy Code’s
requirements for confirmation. Chapter 13 is very different from chapter
7, since the chapter 13 debtor usually remains in possession of the
property of the estate and makes payments to creditors, through the
trustee, based on the debtor’s anticipated income over the life of the
plan. Unlike chapter 7, the debtor does not receive an immediate
discharge of debts. The debtor must complete the payments required under
the plan before the discharge is received. The debtor is protected from
lawsuits, garnishments, and other creditor action while the plan is in
effect. The discharge is also considerably broader (more debts are
eliminated) under chapter 13 than the discharge under chapter 7.
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