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The Major Differences Between Chapter 7 and Chapter 13 Bankruptcy

There are several chapters under the Bankruptcy Code, but the only two that are of concern to most individuals are Chapter 7 and Chapter 13. There are many important differences between the two types of bankruptcy. In a Chapter 7 bankruptcy, all of the debtor’s nonexempt property may be sold by a bankruptcy trustee, with the proceeds used to pay the debtor’s creditors. However, there are many property exemptions available to an individual debtor in New York. Consequently, most Chapter 7 cases are “no-asset” cases, wherein the debtor receives a discharge while creditors do not receive any payment. A discharge means that the debtor is no longer obligated to pay back his or her debts. However, certain types of debts are not dischargeable in Chapter 7. Read more about nondischargeable debts in bankruptcy.

Generally, with some important exceptions, only property owned by the debtor at the time of the filing of the bankruptcy petition will be considered part of the debtor’s bankruptcy “estate” and, therefore, subject to being sold.

To be eligible to file under Chapter 7, debtors must meet certain income requirements. Read more about the Chapter 7 Means Test.

Chapter 13 bankruptcy is mostly used by debtors who either own significant nonexempt assets, have too much income to file under Chapter 7, or have fallen behind on their mortgage payments. Under Chapter 13, the debtor repays some or all of his or her debts over a three to five year period. The debtor files a repayment plan with the court, which details which of the debtor’s creditors will be paid, and in what amount. After a debtor has complied with the terms of the repayment plan, most unpaid debts are discharged, although again certain types of debts are not dischargeable.

The Benefits of Filing Under Chapter 7
  • When a person files under Chapter 7, his or her debts are usually discharged in a very short  period of time, approximately three months after the bankruptcy case is filed.

  • Debtors who file for Chapter 7 bankruptcy in New York are usually able to keep all of their property, including real estate, vehicles, personal property, and bank accounts.

  • Most debts are eliminated when a debtor files for Chapter 7 bankruptcy, without the debtor having to pay the debts back.

The Benefits of Filing Under Chapter 13
  • Chapter 13 is similar to a debt consolidation plan, where the debtor makes payments to a trustee, who in turn distributes the payments to the debtor’s creditors. The debtor will not have direct contact with most creditors during this time. However, in Chapter 13 bankruptcy, unlike debt consolidation, the debtor is under the protection of the Bankruptcy Court, and creditors cannot take any action against the debtor without first obtaining permission from the court.

  • By filing under Chapter 13 bankruptcy, debtors can stop foreclosure proceedings and can repay past due mortgage payments through a Chapter 13 plan. The debtor will have up to five years to repay mortgage arrears. This is far longer than a bank would normally allow to cure a mortgage default. However, mortgage payments that come due during the repayment period must be paid on time.

  • Debtors who file for Chapter 13 can, in some instances, modify the terms of repayment of certain types of secured debts. This can drastically lower the monthly payments that are due and make repayment more manageable for debtors.

  • Filing Chapter 13 can also provide protection for co-signors. It protects third parties who are liable with the debtor on consumer debts, such as car loans. Consumer debts are those incurred for personal, family or household purposes.

  • A debtor is required to wait less time to file for Chapter 13 bankruptcy after a prior Chapter 7 bankruptcy or prior Chapter 13 bankruptcy, as opposed to the longer wait required for a subsequent Chapter 7 bankruptcy filing.

  • Certain debts are nondischargeable under Chapter 7 that are dischargeable when filing under Chapter 13. The most important of these are debts for property settlements incurred pursuant to a divorce, which are not dischargeable in Chapter 7. (Note: It is important to distinguish support obligations, which are never discharged, from property settlement obligations.) Read more about dischargeable vs. nondischargeable debts in bankruptcy.

Fees for Chapter 7 and Chapter 13

Attorney’s fees for a Chapter 7 bankruptcy filing generally range between $1,500 to $2,500, plus the court filing fee of $338. All fees must be paid prior to the filing of the Chapter 7 case.

Attorney’s fees for a Chapter 13 bankruptcy filing are generally between $5,000 and $6,000, plus the court filing fee of $313. However, in Chapter 13, all, or some of, the attorney’s fee can paid through the Chapter 13 plan. Typically, between $1,000 to $2,500 is paid prior to the filing, with the balance paid back through the plan.

Call Today to Discuss Which Chapter of Bankruptcy is Right for You

Contact the Law Office of Andrew M. Doktofsky today for a free consultation about whether you should file for Chapter 7 or Chapter 13 bankruptcy. Andrew M. Doktofsky represents bankruptcy clients in Suffolk County, Nassau County, New York City and surrounding areas. Call (631) 673-9600 if you are considering filing for bankruptcy in New York and would like to learn more about the process from an experienced bankruptcy attorney. Or submit the contact form below.

Andrew M. Doktofsky P.C.  is a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.

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