Many people come to my office and start out a consultation with a statement such as, “I only want to file a Chapter 7” or “I was told that I need to file a Chapter 13,” without really having any idea as to what the difference between the two chapters might be.
The truth is, there are advantages and disadvantages to both.
Here is a brief description of the two:
This type of bankruptcy is what I think that most people think of when they imagine what a bankruptcy really is, a total liquidation. In a 7, the debtor’s responsibility to pay all of his/her unsecured debts, such as credit cards, medical bills, and personal loans, is “discharged.” That means that the creditors can never collect those debts. When it comes to secured debts, such as mortgages or car loans, the debtor is given a choice. He/she can choose to keep paying for the secured item (car/home), and keep it, or surrender the item back to the creditor and get out from under the debt.
This type of bankruptcy works as a repayment of some or all of the debtor’s unsecured debt. Depending on the debtor’s income (and a few other factors), he/she may end up repaying a very small portion of the unsecured debt or sometimes a debtor repays all of it. As to secured debts, it pretty much works the same as it does in a 7 in that the debtor has a choice to keep paying the creditor or surrender the item back to the creditor.
This is a fairly simplistic description of Chapter 7 and Chapter 13, but I hope it begins to clear up any confusion you may have had about the two.
I invite you to contact Berkowitz & Myer at our St. Petersburg, FL offices for a free Chapter 13 vs Chapter 7 consultation by calling us at 727-344-0123 or by filling out the form on the right side of this page.