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How do Chapter 13 and Chapter 7 bankruptcy differ?

Michigan families who are facing insurmountable debt and are looking for debt relief have probably heard that there may be different types of bankruptcy available to them. These people may also feel a little confused about the differences between the types of bankruptcy filings, and which might work best for their financial situation.

A Chapter 7 bankruptcy, which is more common, involves a debtor surrendering "non-exempt" property in exchange for a full discharge of most debts. This type of bankruptcy is generally a one-time process that lasts, typically, a few months. The debtor is allowed to keep property needed to survive and thrive during the fresh financial start that bankruptcy affords people.

Chapter 13, on the other hand, involves a person repaying at least a portion of debts over a period of three to five years. Unlike a Chapter 7, a person filing a Chapter 13 will generally keep most if not all property. However, the filer will be expected to turn over a portion of monthly income to pay down debts.

Some people simply do not qualify for a Chapter 7, and so they must file for Chapter 13 bankruptcy. However, there are other advantages to filing a Chapter 13 as well. For example, a Chapter 13 can be used to "strip off" a cumbersome second mortgage that would otherwise remain a financial burden on a family. There are other advantages to filing a Chapter 13 as well.

This information is of course general and not intended to be legal advice. A Michigan resident who is contemplating bankruptcy will probably want to get more information about which type of bankruptcy might be right.

Source: The Smith Law Offices, P.C., http://www.smithlawmichigan.com/Chapter-13-Bankruptcy/, accessed Aug. 19, 2014

Source: The Smith Law Offices, P.C., http://www.smithlawmichigan.com/Chapter-13-Bankruptcy/, accessed Aug. 19, 2014

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