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What is Chapter 13, and how is it different from Chapter 7?

On Behalf of | Jan 18, 2024 | Chapter 13 Bankruptcy

Bankruptcy offers a solution to overwhelming debt.,  For individuals, there are two main forms of bankruptcy, Chapter 7 and Chapter 13. If you have a steady source of income, but you are still falling behind on your debts, Chapter 13 may be a good choice for you.

Understanding Chapter 13 bankruptcy

Chapter 13 offers debtors a structured pathway to repay some or all of their debts over a span of 3-5 years.

Central to this process is the debtor’s creation of a repayment plan, outlining affordable monthly payments to creditors based on the debtor’s income and expenses. The court and creditors must greenlight the plan, and a Chapter 13 trustee oversees the execution.

If you go through Chapter 13, you must also complete credit counseling and financial management courses.

Chapter 13 benefits

If you are eligible for it, Chapter 13 offers an array of advantages. First, it halts all other efforts to collect your debts. This means that Chapter 13 can serve as a safeguard against home foreclosure, enabling debtors to catch up on overdue mortgage payments. This protection can also prevent repossession of cars and some other types of property.

Chapter 13 also shields co-signers or guarantors from liability associated with the debtor’s debts. This chapter allows the discharge of specific unsecured debts not covered by Chapter 7, including taxes, student loans and domestic support obligations.

Over time, if you make your Chapter 13 payments consistently, you can begin to improve your credit score, putting you on a path to a stronger position when you have completed the bankruptcy process.

Qualification for Chapter 13 hinges on meeting specific criteria. Chapter 13 is accessible to individuals or married couples; businesses are ineligible. A consistent income stream is imperative.

Distinguishing Chapter 13 from Chapter 7

Chapter 13 prioritizes helping you keep your property and paying your debts over time. In contrast, Chapter 7 allows you do discharge your debts more quickly, but also requires you to liquidate some of your property.

The eligibility requirements for the two types of bankruptcy are also different. Eligibility for Chapter 13 is based partly on your income and expenses. To be eligible for Chapter 7, you must go through a means test that measures your income and other resources. Chapter 13 permits modification or discharge of secured debts like mortgages and car loans. Chapter 7 is less flexible..

Chapter 13 addresses certain non-dischargeable unsecured debts, including taxes and student loans. Chapter 7 may leave these debts intact after discharging others.

Chapter 13 bankruptcy can pave the way for a new financial beginning for many Florida residents.


Kingcade & Garcia | A Miami Law Firm