||Ask Dr. Don
Chapter 7 vs. Chapter 13
Dear Dr. Don,
Can you explain the difference between Chapter
7 and Chapter 13, i.e. cars, property and personal items?
A Chapter 7 bankruptcy filing has the bankruptcy court constructing
a bankruptcy estate from your nonexempt assets. The money, or proceeds,
from this estate is used to pay your creditors. The bankruptcy court
discharges all eligible debts and you have no further obligation
to repay those discharged debts.
What's exempt varies by state. States have the choice
of using the federal exemptions or constructing their own lists
of exempt assets. This
site provides a listing of exemptions by state.
With secured debt, like a car loan or a home mortgage,
the lender has a security interest in the property that can't be
discharged in bankruptcy proceedings. Your ability to keep your
home when filing a Chapter 7 bankruptcy depends on the equity you
have in your home, the amount of the homestead exemption that applies
in your state and your mortgage payment history. The same is true
for the equity you have in your automobile.
In contrast, a Chapter 13 bankruptcy filing uses the
bankruptcy court to arrange a repayment plan for the petitioner's
outstanding debts. The repayment plan lasts from three to five years.
At the end of the repayment plan the bankruptcy court will discharge
any remaining eligible debts. It's really difficult to stick with
this plan for the required three to five years.
A person filing a Chapter 13 bankruptcy typically
remains in possession of the property that would be part of the
bankruptcy estate in a Chapter 7 filing. Even in a Chapter 7 bankruptcy
filing, you may be able to make arrangements with the court to hold
on to some nonexempt assets. The U.S. Courts provides an electronic
pamphlet titled Bankruptcy
Basics that provides more information.
Your best move is to discuss your situation
with a bankruptcy attorney to determine whether a Chapter 7 or Chapter
13 bankruptcy is the right decision for you.
-- Posted: Sept. 11, 2003