Most people have heard the terms “Chapter 7” and “Chapter 13” thrown about but are not sure of the difference. Don’t worry – here is what you need to know.

Chapter 7

This is what is referred to as a liquidation bankruptcy. It is designed to wipe out your general unsecured debt (with important exceptions, such as student loans, alimony or child support). The type of debt that would typically be eliminated in a Chapter 7 filing would include credit card debt and medical bills.

In a Chapter 7 filing, the court will appoint a trustee to administer your case. The trustee will review your filing and supporting documentation, and, if need be (based on your available assets), arrange for the disposal (sale) of your non-exempt property to pay back your creditors. Massachusetts has specific limits on what type of property (and it’s value) that you are allowed to keep. We will advise you on what these limits are, how they could impact you, and help you determine how to handle this, if it becomes necessary. For example, if you own (out-right) an expensive automobile, this would likely be non-exempt and the trustee would likely require that it be sold. Normal household property, furnishings, clothing and such are exempt, up to specific amounts.

As you can see from the description above, Chapter 7 is the proper course for those without valuable personal property and with little income. If you own considerable property and have a good income, you may not qualify for Chapter 7, and therefore would need to consider filing Chapter 13.

Chapter 13

Chapter 13 is what is called a reorganization bankruptcy, designed for debtors with regular income who can pay back at least a portion of their debts through a repayment plan. If you are able to file Chapter 13, it may very well be to your advantage. It is likely to allow you to “catch up” on missed mortgage and car payments while completely eliminating wholly unsecured junior liens from your home.

For people with considerable property, Chapter 13 has the other advantage of allowing you to keep all your property, including non-exempt assets. In return, you agree to pay back all, or a portion of your debts through a repayment plan. We will help you negotiate the amount you agree to pay back. This will depend on your income, your expenses, and the type of debt you have. Typically, Chapter 13 bankruptcy is for those who have the ability to make monthly payments to get caught up on missed mortgage or car payments or pay off non-dischargeable debts such as alimony or child support.

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