South Florida residents would be aware that the two most common methods of filing for bankruptcy are under Chapter 7 and Chapter 13 of the United States Bankruptcy Code. While both of these methods are established debt relief methods, there are several differences that all bankruptcy filers should know.
The first difference between the two is that Chapter 7 necessitates the liquidation of assets while Chapter 13 does not. Instead, in Chapter 13 proceedings, the debts are consolidated and the debtor is expected to make monthly payments to repay debts.
The second difference is related to the “means test” that a person filing for Chapter 7 bankruptcy must pass. If a debtor’s income is more than the median income in Florida, a judge may not permit that debtor to file for bankruptcy under Chapter 7. On the other hand, any debtor whose unsecured debt is less than $307,675 and whose secured debt is less than $922,975 can file for bankruptcy under Chapter 13.
Next, in the case of a Chapter 7 filing, almost all the debts that have been accumulated are discharged and the creditors are paid their dues according to the bankruptcy court’s orders. In the case of a Chapter 13 filing, the debts are consolidated and repaid over a period of time before the discharge is granted. In both cases, student loans, state and federal taxes and family support obligations are not discharged.
In the case of vehicles, a Chapter 7 bankruptcy filer’s vehicle may be taken away by creditors unless it is proved that the vehicle serves multiple purposes such as an occupational need. The vehicle is relatively safe in a Chapter 13 filing as long as the debtor makes timely payments or the debtor is able to prove that the vehicle is used to cater to other purposes such as occupational needs.
Finally, a debtor can file for Chapter 7 bankruptcy only if that debtor has not used the same provision in the preceding eight years. Similarly, a debtor can file for Chapter 13 bankruptcy only if that debtor has not received a discharge under Chapters 7, 11 and 12 in the preceding four years or a Chapter 13 discharge in the preceding two years.
