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Even though many individuals are familiar with bankruptcy in general, few are aware of the differences between a Chapter 7 and a Chapter 13. First, a Chapter 7 bankruptcy is considered a liquidation of assets. A Chapter 13 is a reorganization of debts for an individual with regular income.

In Chapter 7, most unsecured debts are discharged within 3-4 months. During this process your property is generally sold to pay off outstanding debt. However, there are exceptions such as homestead laws that allow you to protect certain assets. The process moves quickly, and creditors cannot contact you while the automatic stay is in effect. Eligibility for Chapter 7 is determined by income and the means test.

Chapter 13, on the other hand, allows a petitioner to keep most of their property, while spreading out the time to pay on past due accounts. The typical payment plan allows the petitioner 3-5 years to catch up on delinquent accounts. This plan must be accepted by all of the petitioner’s creditors and approved by the Trustee. At the end of the payment plan period, any remaining outstanding debts will be discharged. Most individuals will qualify for Chapter 13, however, if an individual has too much in secured or unsecured debt, they may have to file a Chapter 11.

Emergency Chapter 13 is also a tool frequently used by individuals to prevent foreclosure of their homes. This allows a petitioner to file an incomplete bankruptcy petition quickly to stop a foreclosure sale and amend it with complete information within 14 days.

Contact an experienced bankruptcy attorney to find out if Chapter 7 or Chapter 13 is right for you.