Chapter 7 and 13 of bankruptcy law are the two most common chapters of bankruptcy law.
If you are in planning to file for bankruptcy under Chapter 7 or Chapter 13 than you must know what is the difference between the two.
This will be beneficial for you in understanding the bankruptcy law and how it works better.
The common belief amongst people is that when they file for bankruptcy all their assets are sold and you are discharged of all your debts right away and the creditors can't press them for any money once the court discharges their debts.
This is a myth.
Bankruptcy law is a very intricate thing and is not easy to understand.
Let's try to understand two most frequently used chapters for filing bankruptcy.
'Straight Liquidation' as Chapter 7 is popularly known is the more common of the two and many people think that this is the only way of filing bankruptcy.
If bankruptcy is filed under chapter 7, it will eradicate almost all the debts except alimony, child support, student loan, tax liens and fines incurred from criminal offenses.
But the new 'means test' requirement incorporated in bankruptcy law that is brought in force in year 2005 has made filing bankruptcy under Chapter 7 difficult.
Court will make a comparison of the income of the debtors under "mean test".
If the income is too less and the debt too high then they allow him to file under Chapter 7, but if the income of the debtor is good enough that he can manage to pay to the creditors while managing his daily expenses then court recommend going for Chapter 13.
In Chapter 13 Court ask the debtor to make the payment to his creditors under a stipulated payment plan.
The income of the debtors is determined by a bankruptcy trustee and on the basis of the income, a payment plan and time frame for making payments are devised.