Chapter 7 vs Chapter 13 (Bankruptcy)

by Aaron Delgado
04/18/19 (Updated: 04/22/19)

If you’re facing bankruptcy in Florida, you likely have a lot of questions. Perhaps you’re primarily wondering what is the difference between Chapter 7 and Chapter 13 bankruptcy, and which one is right for you? While your bankruptcy attorney will answer all of your questions, here are some bankruptcy basics so you can familiarize yourself with the procedures and see which form of bankruptcy you may be eligible for.

Chapter 7 vs. Chapter 13

The difference between chapter 7 and chapter 13 bankruptcy is significant, and most people fall clearly into one category or the other.

Who Qualifies for Chapter 7 Bankruptcy

To file for chapter 7, a person must pass a means test if their income is higher than Florida’s median. If your income is less than the Florida median, you should automatically qualify for chapter 7 bankruptcy. Currently, the Florida median annual income for various household sizes are as follows:

  • 1 Person Household - $41,334
  • 2 Person Household - $51,839
  • 3 Person Household - $53,952
  • 4 Person Household - $63,196
  • 5 Person Household - $71,296

Such households have little, if any, disposable income.

Wage Earner Bankruptcy

Chapter 13 bankruptcy is sometimes called “wage earner” bankruptcy since you most likely earn more than the annual median income for households of your size. For this financial reason, chapter 13 bankruptcy requires you to pay back the bulk of your debts.

Chapter 7 Bankruptcy Florida

Those filing chapter 7 bankruptcy in Florida may have most of their debts discharged, including medical and credit card debts. In essence, this gives you a fresh start. With chapter 7 bankruptcy, a court-appointed trustee will sell property that does not fall under state exemptions in order to satisfy creditors. This is why chapter 7 bankruptcy is known as liquidation bankruptcy.

You must submit a list of all of your assets and debts to the court. Florida allows certain exemptions for chapter 7 bankruptcy, and the most important of these is the Florida homestead exemption. Retirement accounts are also exempt, but not other bank or brokerage accounts. Once your petition is filed, an automatic stay ensues, which means creditors can no longer try to collect a debt, or hound you with phone calls or legal threats.

You cannot discharge all of your debts in a Florida chapter 7 bankruptcy. If you have a mortgage on your home or a loan on your car, you must continue paying these debts unless you want to give up the dwelling or vehicle. If you are facing foreclosure, your bankruptcy filing will only buy you a little time from your mortgage lender, as this debt is not forgiven.

If you previously filed for chapter 7 bankruptcy, you can only do so again if eight years since your first filing have passed. Neither type of bankruptcy allows you to discharge certain debts, including back child support or back taxes.

Chapter 13 Bankruptcy Florida

Unlike chapter 7 bankruptcy, chapter 13 bankruptcy in Florida does not erase all debts. On the contrary, chapter 13 involves paying back creditors, both secured and unsecured, under a court-ordered repayment plan. However, you may find your debts reduced, if not eliminated. Chapter 13 is often called reorganization bankruptcy, and liquidation does not occur.

Qualifying for Chapter 13 Bankruptcy

To qualify for chapter 13 bankruptcy, you must have enough income to make such payments. Any disposable income must go into the repayment plan, which continues until the creditors are paid off or after five years, whichever is first. The repayment plan outlines the amount of time you will have to pay your debts and the amount of money you must pay. The good news in chapter 13 bankruptcy is that you can keep most of your possessions. The bad news is that if your income is too low and your debts are too high, you will not qualify for chapter 13 bankruptcy.

Chapter 13 Bankruptcy and Foreclosure

If your lender is foreclosing on your home, Chapter 13 bankruptcy allows you to stop the foreclosure and make those past due payments. As long as you stick to your court-ordered repayment plan, you will not lose your house, nor will you lose your car if it falls above the exemption threshold of $1,000 in equity found in chapter 7. A chapter 13 bankruptcy lets you renegotiate some debt terms, and gives you breathing room as you catch up on back debt payments.

When to File Chapter 13

Unlike a chapter 7 bankruptcy, you may file a chapter 13 bankruptcy at any time, and do not have to wait a specific number of years if you must file bankruptcy again. Since a chapter 13 bankruptcy is more complicated and involves more work than the chapter 7 variety, you can typically expect higher legal fees. Another caveat – if you or your spouse are a stockbroker or commodity broker, you are ineligible for filing chapter 13 bankruptcy.

Contact a Bankruptcy Attorney

If you are facing bankruptcy, you need the legal services of an experienced Florida bankruptcy attorney. Call us today or contact us online for a free consultation to discuss your options and see whether chapter 7 or chapter 13 bankruptcy will be best for you. When you hire Delgado & Romanik for your bankruptcy proceeding, a skilled and experienced bankruptcy attorney will represent you throughout the entire legal process of your case.

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