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Ask the Experts

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Q:
Can you explain the difference between a Chapter 7 and Chapter 13 bankruptcy?

We are current on all financial obligations but find our monthly debt exceeds our monthly income. Could you explain the difference between a Chapter 7 and Chapter 13 bankruptcy? How will it affect our house, furniture, cars (the only assets we now have)? Help! I'm feeling hopeless! -Frannie

Dear Frannie,

You are not alone and you will find a solution. Our nonprofit organization counsels thousands of people in your situation each month. I recommend that you visit with one of our trained credit counselors. Credit counselors are not attorneys, but they can help you review your options. You can find more information about the credit counseling MMI offers in the services section of our website and fill out an online counseling form to speak with a counselor about your options. With that being said, I will try to answer your questions to the best of my ability.

Chapter 7 bankruptcy is designed for debtors in financial difficulty that do not have the ability to pay their existing debts. A trustee takes possession of all your property but you may claim certain property as exempt from seizure under governing law. The trustee then liquidates your non-exempt property to pay your creditors according to priorities of the Bankruptcy Code. The purpose of filing Chapter 7 is to obtain discharge of your existing debts, however some debts are not dischargeable under the law.

A Chapter 13 bankruptcy is designed for individuals with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time. You file a plan with the court to repay your creditors all or part of the money you owe them, using your future earnings. The court must approve your repayment plan before it can take effect. Under Chapter 13, unlike Chapter 7, you may keep your property, both exempt and non-exempt, as long as you continue to make payments under the plan. After completion of payments under your plan, your debts are discharged except alimony and support payments and long term secured obligations.

Best of luck with your decision,

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