Chapter 7 and chapter 13: what is the difference?

Tennesseans currently wading through a sea of debt know all too well that recovering from this financial hit can take a considerable amount of time and effort. Not only does a money issue create immediate complications; it can linger and worsen if unaddressed. Although each situation can be unique, a common question surfaces during this process: what are the main differences between Chapter 7 and Chapter 13? 

Pocket Sense provides an accessible rundown of Chapter 7 bankruptcy and Chapter 13 bankruptcy, explaining that these two routes are the most commonly used among debtors across the nation. The main difference between these two plans lies in the details; while Chapter 13 cancels only the debts that a consumer cannot pay back within a three- to five-year timeframe, Chapter 7 has the ability to cancel the large majority (if not all) of a consumer’s unsecured debts. Debtors must meet eligibility requirements in order to move forward with either plan. As Pocket Sense describes, Chapter 7 bankruptcy requires debtors to complete a Chapter 7 test. Chapter 13 places more focus on one’s unsecured and secured debts. 

One article in Money Crashers gives more specific guidance on choosing the right bankruptcy plan, first pointing out that Chapter 7 may be a better choice for those with low income or few assets. Furthermore, those who choose Chapter 7 generally do not have the funds needed to file Chapter 13 to begin with. Chapter 7 might also be ideal when debts are simply too high. Money Crashers advises readers to opt for Chapter 13 when there are vital assets in the picture — contrasting from Chapter 7, debtors who file Chapter 13 usually pay off debts with current income. By the same token, Chapter 13 is a wise choice for those with a consistent income used to address surmounting debt. Ultimately, it is up to the consumer to make this important decision, but the end goal remains the same: to get out of debt and back to one’s life. 

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