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What are the basic differences between Chapter 7 and Chapter 13 bankruptcy?

Bankruptcy can be an overwhelming subject to understand, but many who research the options available will find that the two options available are Chapter 7 and Chapter 13. These two options are handled very differently and are important to those considering bankruptcy. Know the differences when choosing how to proceed. Both are nuanced and complex, but there are some important differences in the way these options are searched for and completed that can help a person figure out which one may work best for their needs.

Bankruptcy is known as an option for those facing overwhelming or insurmountable debt. If the debtor elects to file for Chapter 7 bankruptcy, a trustee can sell all of the individual’s non-exempt property so that the proceeds go toward the debt.

However, Ohio and Kentucky allow many property exemptions. Most Chapter 7 scenarios are actually considered “no assets” cases, which means that the debtor will not be forced to dispose of any property and the creditors will not receive a profit. It can be difficult to know what property is exempt during this process, but a bankruptcy attorney can be very beneficial in analyzing your situation and helping you understand what property would be considered exempt when filing a Chapter 7 return.

Some of the common exemptions during this process include:
• Homestead: real or personal property
• Personal property: burial ground, motor vehicle, bank accounts, tax refunds, household items, furniture, musical instruments
• Wages: minimum of 75% of weekly disposable income
• Pensions: tax-exempt retirement accounts, public employee pensions
• Tools of trade: tools, books, implements
• Alimony: alimony and child support
• Insurance: disability, life, group life
• Misc. – property of a commercial company
• Wildcard: $ 1,150 from any property

This type of filing is beneficial because it negates the debts that a person owes. While some assets may be lost, a person can often be free of most of their debt. Also, this method is usually a faster and more efficient way to complete a bankruptcy motion. However, it still has long-term consequences, so this option must be carefully considered.

Chapter 13 bankruptcy is often a more complicated process. This option is generally more appropriate for those who want to protect their assets while paying their debts in a more forgiving environment. The courts will protect a debtor who applies under this plan so that he can pay off the mortgage debt or other payments over a longer period of time. This situation can provide protection to co-signers or other third parties on items such as automobiles.

Another important difference between the two options is that certain types of debt cannot be canceled under Chapter 7, but are eligible under Chapter 13. One of the main debts involved is any debt related to property settlements during a divorce. These debts cannot be discharged under Chapter 7, so it is important to consider this if debt through divorce is part of the cause of filing for bankruptcy.

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