What are the basic differences between Chapter 7 and Chapter 13 bankruptcy?

Bankruptcy can be an overwhelming subject to understand, but many who research the available options will find that the two available options are Chapter 7 and Chapter 13. These two options are handled very differently and it is important that those who are considering filing for bankruptcy know the differences when choosing how to proceed. Both are nuanced and complex, but there are some important differences in the way these options are pursued and completed that can help a person know which may work best for their needs.

Bankruptcy is known as an option for those facing overwhelming or insurmountable debt. If the debtor chooses to file for Chapter 7 bankruptcy, a trustee can sell all of the person’s nonexempt assets so that the proceeds go toward the debt.

However, Ohio and Kentucky allow many property exemptions. Most Chapter 7 scenarios are actually considered “no asset” cases, meaning the debtor will not be forced to part with any property and creditors will not receive any proceeds. It can be difficult to know what assets are exempt during this process, but a bankruptcy attorney can be very beneficial in analyzing your situation and helping you understand what property would be considered exempt when filing under Chapter 7.

Some of the common exemptions during this process include:
• Homestead – real or personal property
• Personal property: burial plot, motor vehicle, bank accounts, tax refunds, household items, furniture, musical instruments
• Wages: Minimum 75% of weekly disposable income
• Pensions – tax-exempt retirement accounts, public employee pension
• Tools of the trade: tools, books, implements
• Alimony – alimony and child support
• Insurance – disability, life, group life
• Miscellaneous – owned by commercial company
• Wild Card – $1,150 of any property

This type of filing is beneficial because it denies the debts that a person has. While some property may be lost, many times a person can be relieved of most of their debt. Additionally, this method is often a more efficient and faster way to complete a bankruptcy motion. However, it still has long-term consequences, so this option should be considered carefully.

Chapter 13 bankruptcy is often a more complicated process. This option is often more suitable for those who want to protect their assets while paying down their debts in a more lenient environment. The courts will protect a debtor who signs up under this plan to pay mortgage debt or other payments over a longer period. This situation can provide protection to co-signers or other third parties on items such as automobiles.

Another important difference between the two options is that certain types of debt cannot be discharged under Chapter 7 but are eligible under Chapter 13. One of the main debts involved is any debt related to property settlements during a divorce. These debts cannot be discharged under Chapter 7, so this is important to consider if the debt through divorce is part of the cause of the bankruptcy filing.

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