Ch 7 v. Ch 13

The Bankruptcy Code is divided into chapters.  The chapters which usually apply to consumer debtors are chapter 7, known as a Fresh Start, and chapter 13, known as a Repayment Plan.

With a “fresh start,” the debtor will be discharged from the legal obligation to pay unsecured debts such as credit card debts, medical bills, cash-advances and utility arrears.  However, certain types of unsecured debt are allowed special treatment and cannot be discharged.  These include student loans, alimony, child support, criminal fines, and some taxes.

A chapter 13 case may be advantageous in that the debtor is allowed to get caught up on mortgages or car loans without the threat of foreclosure or repossession and is allowed to keep both exempt and nonexempt property.  Additionally, the debtor may  strip a second mortgage or even reduce the interest rate on existing secured loans, such as a vehicle loan (down to 4.5%).

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