Bankruptcy can be a difficult financial and legal process to navigate through. Deciding which chapter to file is crucial to getting the most out your bankruptcy results. What some people dont realize is that Chapter 13 and Chapter 7 share some similarities. Here are a couple:
Both Impose a Bar on Your Creditors Against Collection Activity
One of the most powerful benefits sought after by a debtor invoking bankruptcy protection is the “Automatic Stay” – an injunction that automatically stops lawsuits, foreclosures, garnishments, and most collection activities against the debtor the moment a bankruptcy petition is filed. Most people know that the Automatic Stay is available to those who file for Chapter 7 protection, but the same benefits of the Automatic stay are also available to those debtors filing under Chapter 13. Once the bankruptcy is in effect, your creditors will have to seek court approval before they can take action to pursue their claim and even then, they will only be able to do so if they satisfy strict requirements and are not being adequately provided for through the bankruptcy. In most cases, however, as long as you are making your required monthly Chapter 13 plan payments, you will keep your creditors at bay, allowing you the time to rebuild and reorganize your finances under court protection.
Both Discharge Debt
You might consider this a given, but its important to recognize that in a Chapter 13 the debtor receives (almost) the same discharge as in a Chapter 7 as to all unsecured debts provided for in the plan once the plan is completed. (“unsecured” debts are those for which you have not pledged collateral). In a Chapter 13 plan, Creditors that are either fully or partially provided for are barred from making any collection efforts on the discharged obligations. A Chapter 13 discharge applies to more debt categories than a Chapter 7, including willful and malicious injury to property (as opposed to a person) debts acquired while paying nondischargeable tax obligations, and debts incurred in the property settlements in divorce or separation proceedings.
Additionally, a Chapter 13 gives debtors the opportunity to be released from their unsecured debt even if completion of their proposed Chapter 13 plan is unlikely. In some cases, after a plan is confirmed, unforeseen situations might prevent the debtor from fulfilling it. A special “hardship discharge” may be granted by the court so the debtor can still get relief. Here are the reasons a “hardship discharge” may be granted: (1) The debtor was not at fault for failing complete their plan payments and was confronted with circumstances beyond their control. (2) Creditors have gotten no less than they would have received in a Chapter 7 case. (3) Changing the plan to accommodate the unforeseen circumstances is impossible. As opposed to a regular Chapter 13 discharge, the hardship discharge is more limited and cant release debts that would not be covered by a Chapter 7.
Because declaring bankruptcy can be a very painful, emotional process, it is best to do as much research as possible before making the decision, and its always advisable to speak to a knowledgeable professional who can go over your personal financial situation and properly advise you as to whether or not bankruptcy is the right path for you to take.