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Chapter 7 vs. Chapter 13 Bankruptcy
- Bankruptcy Type: Chapter 7 bankruptcy is often referred to as a ”straight bankruptcy” or “liquidation bankruptcy”. Chapter 13 bankruptcy is often referred to as “reorganization bankruptcy”.
- Bankruptcy Eligibility: Chapter 7 bankruptcy may be filed by indebted individuals or businesses. Chapter 13 bankruptcy is a debt relief option available only to indebted individuals. A business cannot file Chapter 13.
- Trustee Responsibilities: Within a Chapter 7 bankruptcy, a trustee determines and facilitates the selling of assets before providing creditors with the proceeds to pay down debts. A Chapter 13 bankruptcy trustee assists in the creation and proposal of a court-approved monthly debt repayment plan.
- Property Protection: Individuals filing Chapter 7 bankruptcy are permitted to protect certain property from liquidation by way of state-level exemption laws. For Chapter 13 bankruptcy, all assets are generally kept as long as the court-approved debt repayment plan meets the liquidation requirement.
- Bankruptcy Length:The typical length of the Chapter 7 bankruptcy process, considered a more immediate debt relief option, is 4-5 months. The Chapter 13 bankruptcy process, considered to be more of a debtor rehabilitation program, generally takes between three and five years to complete.
- Bankruptcy Frequency: Chapter 7 bankruptcy is the nation’s most common form of bankruptcy.
- Bankruptcy Complexity: Chapter 7 bankruptcy has gotten significantly more complicated since the enactment of the BAPCPA Bankruptcy Act (2005). Additionally, the Chapter 13 bankruptcy process is generally considered to be more complicated than that of Chapter 7 bankruptcy.
- Bankruptcy Success: Statistically speaking, filing for bankruptcy without the assistance of a bankruptcy lawyer severely increases the chances that a Chapter 7 or Chapter 13 bankruptcy case will be dismissed within the first couple months of the respective bankruptcy processes.