To understand Ch 7 v. Ch 13 you must first know that 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.
- Have low income
- Debts primarily consists of unsecured creditors
- Have less than $38,000 in equity in home
- Current on home and mortgage
- Have not filed bankruptcy in the past 8 years
Chapter 7 – “Fresh Start” 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.
- Make too much to qualify for Ch 7
- Facing repossession or foreclosure
- Excessive Student Loans
- Large Debts to IRS or Michigan
- Have filed for bankruptcy in the past 8 years
Chapter 13 – “Repayment Plan” 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%). Also, Ch 13 is safer being that (unlike in Ch 7) at any time you may dismiss your case at any time.
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