Discharge of debt under Chapter 7 v. Chapter 13 bankruptcy

Many Minnesota residents have experienced financial difficulties at some point in their lives, and for some, filing for bankruptcy may be a good option for dealing with debt that has become insurmountable. For those who file for bankruptcy, not all of their unsecured debts will be eligible for discharge. In a Chapter 13 bankruptcy proceeding, a person will have to wait at least three to five years before eligible unsecured debts are discharged. In a Chapter 7 bankruptcy proceeding, any unsecured financial debts will be discharged about four months after the court proceedings are complete.

Debts take longer to be released in a Chapter 13 bankruptcy proceeding because, under Chapter 13, debts are first reorganized and adjusted; Chapter 13 does not provide for a complete liquidation of qualifying debts. During the time prescribed by the judge, an individual will make payments to some creditors who are owed money. After that period is up, a judge may approve a plan that discharges the remaining amounts owed to these creditors.

The trade off for waiting longer to have debts discharged under Chapter 13 is that individuals who file for Chapter 13 bankruptcy will only have a notice of the filing on their credit reports for seven years rather than 10 years, the length of time that a notice of a Chapter 7 bankruptcy filing appears on a credit report. People may also be forced to forfeit assets under Chapter 7 that they would not have to give up under Chapter 13.

In some instances, people can only be eligible to file for Chapter 13 bankruptcy because they don't qualify for Chapter 7. Individuals who need help determining their eligibility to file for bankruptcy or deciding which bankruptcy proceeding to choose may want to consult an attorney.

Source: Fox Business, "When is a Bankruptcy Officially Discharged?", Erica Sandberg, August 04, 2014

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