The Bankruptcy Code describes several different types of bankruptcy, some of which may be more appropriate for an individual or business, dependent on their own personal circumstances. To be sure, the nuances of bankruptcy law can be complex to the uninitiated; however, a recent circuit court of appeals case goes over a few of the differences between two of the more common types of bankruptcy – Chapter 7 and Chapter 13.
In the recent case, In re Davis, the 4th Circuit Court of Appeals goes over a few of the key differences between Chapter 7 and Chapter 13 bankruptcy. For example, the court notes the following about each type of bankruptcy:
Chapter 7 Bankruptcy:
- The focus of Chapter 7 Bankruptcy is “liquidation,” meaning that the person claiming bankruptcy liquidates, or sells any assets that are not exempt. As a practical matter, however, most debtors never actually lose any property when they file Chapter 7 Bankruptcy because of the availability of federal and state exemptions which generally protect certain essential property such as household goods, automobiles and retirement savings, among other things. An exemption is also available to protect a certain amount of equity in one’s personal residence (up to $22,975 per person in Kentucky and $17,600 per person in Indiana).
- Proceeds from the liquidated assets are then used to pay off debt holders.
- Amounts of debt in excess of what can be covered by the liquidated assets are discharged.
- However, some classes of debt are non-dischargeable; these debts remain intact. These include, among others, student loans, child support and some taxes.
- Discharged debts cannot be collected, or even attempted to be collected once the bankruptcy is complete. Continue reading