Key Differences Between Chapter 7 and Chapter 13 in Oregon

When it comes to navigating bankruptcy in Oregon, understanding the key differences between Chapter 7 and Chapter 13 is crucial. Both chapters serve distinct purposes and have unique implications for individuals facing financial hardship. Here are the main differences to consider:

1. Type of Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts, such as credit card bills and medical expenses. In contrast, Chapter 13 bankruptcy is known as "reorganization bankruptcy." It enables individuals to retain their assets while creating a repayment plan to pay back all or part of their debts over a period of three to five years.

2. Eligibility Requirements

Eligibility for Chapter 7 bankruptcy in Oregon involves passing the means test. This test evaluates your income level against the median income for your household size in Oregon. If your income is below the median, you qualify for Chapter 7. On the other hand, anyone with a regular income can file for Chapter 13, but they must have unsecured debts of less than $419,275 and secured debts of less than $1,257,850 as of 2023.

3. Process Duration

The timeline for each bankruptcy chapter differs significantly. Chapter 7 typically takes about three to six months from filing to discharge, allowing for a quicker fresh start. Chapter 13, however, involves a repayment plan that lasts three to five years, which can create a prolonged process before debts are fully resolved.

4. Asset Retention

In Chapter 7, non-exempt assets may be sold by the bankruptcy trustee to pay creditors. However, Oregon has specific exemptions that may allow debtors to keep essential property, such as a primary residence or vehicle, depending on their value. Conversely, Chapter 13 bankruptcy allows debtors to retain all their assets, including non-exempt properties, as long as they adhere to their court-approved repayment plan.

5. Impact on Credit

Both Chapter 7 and Chapter 13 will significantly impact your credit score. A Chapter 7 bankruptcy remains on your credit report for ten years, while Chapter 13 remains for seven years. This difference can influence your ability to secure new credit, loans, or even housing in the future.

6. Debt Discharge

Chapter 7 provides a more comprehensive discharge of debts, eliminating most unsecured debts once the process is complete. In contrast, Chapter 13 may only discharge certain debts upon completing the repayment plan, and some debts—like student loans and certain tax debts—often remain after the bankruptcy process.

7. Payment Plans

In Chapter 13, debtors are required to propose a payment plan to repay their debts based on their income, which must be approved by the bankruptcy court. This ensures that creditors receive some repayment over time. In Chapter 7, there is no repayment plan, as the focus is on discharging debts as quickly as possible.

Conclusion

Understanding these key differences between Chapter 7 and Chapter 13 bankruptcy in Oregon can help individuals make informed decisions about their financial future. It’s essential to consult with a qualified bankruptcy attorney to discuss specific circumstances and determine the best course of action.