Bankruptcy:  Comparing
Chapter 7 with Chapter 13

C h a p t e r  7

C h a p t e r  13

Debtor’s
Perspective

Creditor’s Perspective

Debtor’s
Perspective

Creditor’s Perspective

• Complete forgiveness of most debt

• Total loss – must write off an asset

• Partial debt forgiveness likely

• Gets at  least some of the money owed it
   

• Debtor gets a “fresh start” – walks away with “clean slate”

• Creditor is left with bad debt on its books

• Must continue with debt burden until paid off

• Regular stream of income for period of repayment

• Process is usually complete within 120 days  

• Creditor may have worked with debtor for several years before bankruptcy petition on a plan to pay down the debt– now creditor is not given very much time to contest & is often useless for creditor to  contest anyway
   

• No quick fix – repayment period usually 3-5 years

• Repayment more equitable than discharge of debt since creditor may have lent its money to debtor in form of granting credit, for years prior to petition

• Quick, easy

• Too quick and too easy – invites abuse

• Can help preserve business relationships where debtor intends to continue operating, or does not want to “start from scratch” again after CH 7 discharge
   

• Often see it to their benefit to work with debtors who show intent to “stick it out” and repay their debt instead of seeking discharge  under Chapter 7

• Court’s involvement usually ends after 120 days with discharge

• Forever foreclosed from asserting any rights to collect the debt after discharge granted (usually 120 days after filing)
   

• Ongoing supervision and involvement of the bankruptcy court until payment plan completed

• Supervision viewed as valuable in keeping debtor on course with payment plan