Individuals who are considering filing for bankruptcy to restructure their
financial situations often want to know what differentiates Chapter 7 from
Chapter 13 bankruptcy proceedings. Considered the simplest form of bankruptcy
protection, Chapter 7 liquidates and redistributes the filer’s assets, which may
include property, in order to pay off creditors. The end result is a reduction
in, or elimination of, debt for the client, which can lead to financial peace of
mind as well as an end to collections proceedings from debt recovery agencies.
Because of the possibility of losing property, clients owning homes or land may
opt for Chapter 13 bankruptcy, which offers more protection for individuals who
own a greater amount of assets. To file for Chapter 13, clients must have a
steady monthly income and be capable of repaying a certain percentage of the
debt.

An attorney with over 21 years in the practice of law, Patrick
Cordero runs his practice out of Miami, Florida. The Law Offices of Patrick
Cordero is the largest bankruptcy filer in the state of Florida, and has helped
thousands of individuals regain their financial security.

For nearly two decades, Patrick Cordero has served as one of South Florida’s premier bankruptcy attorneys. Cordero assists clients in matters relating to bankruptcy law.

The first permanent bankruptcy law in the United States was enacted in 1898. Previous codes dealt with the liquidation of a debtor’s assets and distribution of the proceeds among creditors. The 1898 code provided for relief from creditors by means of “equity receivership.” The concept, derived from the way insolvent railroads were treated by the courts, allows debtors to retain ownership of their assets while paying some or all of their debt. 

American bankruptcy laws in the 20th century emphasized the rehabilitation of the debtor, where laws and practices beforehand had been much more punitive in nature. In many cases, debt becomes overwhelming not because of poor judgment on the debtor’s part, but because of circumstances beyond his or her control. For instance, in modern times, it is estimated that over 60% of all personal bankruptcies are due to unexpected medical bills. Punishing debtors who become the victims of circumstance is seen as serving no societal goal.

Since the 1801 Act, bankruptcy law has evolved a great deal. Found at Title 11 of the United States Code, it provides for six different kinds of bankruptcy. The two most common filings, Chapter 7 and 13, are available to individuals and organizations. Chapter 7, considered the fastest and simplest form of bankruptcy, provides for the liquidation of a debtor’s assets, except for legally excluded items like primary residences and tools, with the proceeds distributed to creditors. Chapter 13 bankruptcy permits the debtor to retain ownership of all his assets as long as he makes payments to creditors in accordance with a plan he develops and presents to the court. The debts are then discharged. That is, the debtor is considered to have met his obligation and the creditor may no longer attempt to collect any amount due. Some debts, like child support and tax payments, generally cannot be discharged through bankruptcy.

In 2005, the bankruptcy code was amended to discourage or prevent abuse, a phenomenon that commercial creditors asserted was a major problem. For instance, debtors must now pass a means test before being permitted to file under Chapter 7. They must wait eight years after the discharge of a bankruptcy before they may file again.