Differences Between Chapter 7 & Chapter 13 Bankruptcy

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EFFECTS ON PROPERTY: A chapter 7 and chapter 13 have different effects on the debtor's property. A chapter 7 may require a party to sell their home to pay unsecured creditors; whereas a Chapter 13 often allows a home to be kept by the debtor. Both chapter 7 and chapter 13 typically allow a party to keep a financed car, but each will differ in terms of how they treat repayment or reaffirmation.

REPAYMENT: Many debtors may be able to discharge most debts in a Chapter 7 without paying a creditor anything. But in a Chapter 13, a debtor will often be required to pay back a portion of the original balance, even if that repayment tends to be less than the whole original amount.

WHO QUALIFIES: Qualifications for a Chapter 7 tend to be stricter than a Chapter 13. For a Chapter 7, you must pass the "means test" which reviews your median income and expenses. Typically, lower-than-median income debtors will qualify. But some higher-than-median income debtors may be required to file a Chapter 13. At the time of this writing, the median income for AL was approximately $48,000, for a single individual.

FILING FEES: Filing fess for Chapter 7 tend to be slightly more. But the difference tends to be fairly small. For example, a Chapter 7 may cost $335 for Court Costs. And a Chapter 13 will be slightly less, at $310 in Court Costs.

ESTATE PROPERTY: In a Chapter 13, the property of the debtor tends to stay the property of the debtor. This is not always the case in Chapter 7. In a chapter 7, the trustee sometimes considers your property to be "estate property" which means the debtor must claim exemptions to try and avoid liquidation, or selling of assets, by the Trustee.

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