Q: What are the differences between Chapters 7 and 13?
A: Chapter 7 of the Bankruptcy Code is entitled "Liquidation" and, as the name implies, generally requires sales or foreclosure of all property except property deemed to be exempt. In most instances, the Chapter 7 debtor is promptly discharged from all or most pre-bankruptcy debts and receives a fresh start on a new economic life. This new economic life frequently begins only with exempt assets. Chapter 13
is entitled "Adjustment of Debts of Individuals with Regular Income." It is often called "wage earner" or just "Chapter 13
." Chapter 13
debtors pay all or part of their debts through future income rather than through liquidation or foreclosure of present assets. Chapter 13
is available only to individuals with regular income whose non-contingent, liquidated unsecured debts are less than $250,000 and whose secured debts are less than $750,000. Corporations and partnerships are not eligible for Chapter 13
. The Chapter 13
debtor's income must be regular, but can come from such things as self-employment, pension, welfare or alimony.
Q. What is Chapter 7 bankruptcy?
A: Chapter 7 is what most people refer to as "straight bankruptcy." In a Chapter 7, the debtor turns over all of his or her non-exempt assets to a Chapter 7 trustee. The Chapter 7 trustee liquidates the assets and distributes the proceeds to the debtor's creditors. By order of the Bankruptcy Court, the person is then discharged from all debts.