The Difference Between Chapter 7 and Chapter 13 Bankruptcy

March 6, 2025

The Difference Between Chapter 7 and Chapter 13 Bankruptcy

When facing overwhelming debt, bankruptcy may offer a way to regain financial stability. However, it’s important to recognize that not all bankruptcy options are the same. The two most common forms of bankruptcy for individuals are Chapter 7 and Chapter 13, each with its own distinct features. In this post, we’ll examine the key differences between Chapter 7 and Chapter 13 bankruptcy to help you determine which option might be right for you.



What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, often called "liquidation bankruptcy," allows individuals to discharge most of their unsecured debt. This includes credit card balances, medical bills, and personal loans. In Chapter 7, a court-appointed trustee sells non-exempt assets to repay creditors. Once the liquidation process is complete, the remaining eligible debts are erased, offering a fresh start for those struggling with financial burdens.


While this process can provide quick relief, not all individuals qualify for Chapter 7 bankruptcy. Eligibility depends on income and the means test, which evaluates whether your income is low enough to file under this chapter. If you have significant assets or a higher income, you may not qualify for Chapter 7 bankruptcy.


What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is often referred to as "reorganization bankruptcy" because it allows individuals to keep their property while reorganizing their debts into an affordable repayment plan. Unlike Chapter 7, there is no liquidation of assets in Chapter 13. Instead, the individual agrees to a court-approved repayment plan, which typically spans three to five years. During this time, you make monthly payments to a trustee, who distributes the funds to your creditors.


Chapter 13 bankruptcy is ideal for people who have steady income and wish to retain their property, such as a home or car, which they may risk losing in Chapter 7. Additionally, Chapter 13 allows for the discharge of certain debts that are not eligible for discharge under Chapter 7, such as some tax debts or overdue child support.


Key Differences Between Chapter 7 and Chapter 13 Bankruptcy

Eligibility Requirements:

  • Chapter 7: Requires a means test to determine eligibility based on income. It is more suited for individuals with lower income and fewer assets.
  • Chapter 13: Available to those with regular income and the ability to commit to a repayment plan over several years. There are no specific income requirements, but debt limits apply.

Asset Liquidation:

  • Chapter 7: May involve the liquidation of non-exempt assets to pay creditors.
  • Chapter 13: No assets are liquidated; instead, the debtor agrees to repay debts through a structured repayment plan.

Repayment:

  • Chapter 7: Offers a quicker process, with most debts discharged within a few months.
  • Chapter 13: Involves long-term repayment plans, typically lasting three to five years.


Which Option is Right for You?

The choice between Chapter 7 and Chapter 13 bankruptcy largely depends on your financial situation. If you have significant unsecured debt and limited assets, Chapter 7 may be the best option to eliminate your debt quickly. On the other hand, if you have a steady income, own valuable property, or need more time to pay off debts, Chapter 13 could provide a more appropriate solution.

Consulting with a knowledgeable bankruptcy attorney can help you make an informed decision based on your unique circumstances.


Both Chapter 7 and Chapter 13 bankruptcy provide ways to eliminate or restructure debt, but they operate differently and come with different eligibility requirements. Whether you’re looking to discharge your debts quickly or protect your assets while paying off what you owe, each option offers distinct benefits. If you are struggling with debt, it’s important to explore all of your bankruptcy options to determine which one aligns best with your financial goals.

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November 1, 2023
Filing for bankruptcy can be a daunting and overwhelming process, especially when you’re not familiar with the legalities involved in the filing. Chapter 13 bankruptcy, in particular, can be quite complex and challenging to navigate without professional guidance. This is where the role of a competent and experienced bankruptcy attorney comes in. Bankruptcy attorneys are trained and knowledgeable about the intricacies of the bankruptcy process. In this blog post, we’ll delve into the importance of hiring a bankruptcy attorney, the benefits you stand to gain, and what exactly they do during the bankruptcy process.  1. Expert Legal Guidance and Advice: Filing for chapter 13 bankruptcy is not a decision that should be taken lightly. It is essential to ensure that you have all the necessary information before you make a move. This is where a bankruptcy attorney comes in. They provide expert legal guidance and advice, ensuring that you make an informed decision before filing. A qualified attorney has years of experience in handling complex bankruptcy cases, and they can review your financial situation, suggest viable options, and help you make the best decision. 2. Professional Representation and Advocacy: With a competent bankruptcy attorney on your side, you have an advocate who will represent you in court. They will work tirelessly to ensure that your rights are protected and that you get the best possible outcome. Bankruptcy attorneys understand the legalities involved in chapter 13 cases and can provide you with the best defense possible. 3. Reduction of Stress: Filing for chapter 13 bankruptcy can be an emotionally draining experience. However, with legal representation, your attorney will lift most of the burden off your shoulders. Your attorney will take care of all the paperwork, court filings, and communication with your creditors. This means that you will have more time to focus on yourself and your family, reducing your stress levels considerably. 4. Handling of Complex Paperwork: Filing for chapter 13 bankruptcy involves tons of paperwork that only a professional can manage effectively. Bankruptcy attorneys have been trained to handle these legal documents, ensuring that everything is in proper order, reducing the risk of errors, and speeding up the process. This also ensures that your case does not suffer any setbacks due to paperwork errors. 5. Negotiation with Creditors: One of the primary tasks of a bankruptcy attorney is to negotiate with your creditors. They will work with your creditors to come up with a repayment plan that suits your financial situation. Your attorney will ensure that you get a fair deal by negotiating lower interest rates, reduced monthly payments, extended payment plans, or even debt forgiveness, depending on your unique situation. Filing for chapter 13 bankruptcy in Louisiana can be intimidating, but with the help of a competent bankruptcy attorney, you can make the process more manageable. A bankruptcy attorney provides expert legal guidance, professional representation, and advocacy, reduces stress, handles complex paperwork, and negotiates with creditors on your behalf. Get in touch with a reliable bankruptcy attorney today and take your first step towards financial freedom.

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In February, 2020, a new Subsection V to Chapter 11 of the Bankruptcy Code became effective. As many of you are aware, Chapter 11 is generally used for the purpose of reorganization by businesses or by individuals whose debt exceeds the Chapter 13 debt limitation (below $394,725 in unsecured debt and below $1,184,200 in secured debt). Chapter 13 debt limits can easily be surpassed by individuals who have personally guaranteed business debt or have large student loans. The problem with Chapter 11 to small businesses and individuals is that it moves slowly and is very expensive as it was originally designed to reorganize large corporations. As an alternative, Congress finally passed a new Subchapter V which creates a shorter, more cost effective, stream-lined approach for small business and personal reorganization. As passed, individuals and businesses that qualify as a "small business debtor" are eligible for relief. To be a "small business debtor," the following criteria are required: (i) debtor is engaged in commercial or business activities; (ii) debtor has no more than $2,725,625 of non-contingent liquidated secured and unsecured debt; (iii) 50% of debt must have been generated from business or commercial activity; and (iv) the debtor cannot have as its primary activity the ownership of single asset real estate. Under the recently passed CARES Act, the debt limit for a Subchapter V entity has been increased, applicable only for 12 months since the passage of the Act, to $7,500,000. However, this only applies to Debtors filing their cases AFTER the passage of the CARES Act in March, 2020. The higher debt limit will help many small businesses and individuals who would otherwise been ineligible had the losses not occurred after the outbreak of COVID-19.

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Every part of the country has been affected by the coronavirus. Like restaurants, arenas and other locations where people assemble for business or pleasure, most courts have been closed. If you are in the midst of a bankruptcy proceeding, your case might be delayed, handled telephonically or be otherwise disrupted due to the pandemic. Furthermore, as bankruptcy courts attempt to improvise solutions for debtors and creditors, the country’s economic upheaval indicates that the system might soon become overwhelmed. Regardless of what you hear on the news or from friends, don’t assume either that your case is definitely delayed or that it will remain unaffected, as courts typically make these decisions based on local conditions. However, you should be aware that potential impacts to your bankruptcy proceedings might include: Court closures — Many federal courthouses have been off limits for understandable reasons. In Detroit, a court was closed after a security officer tested positive for COVID-19, an example of local conditions preceding top-down decisions to close. You can check with your lawyer, call the court or see updates on closures in your state here . Telephonic creditors’ meetings — As the pandemic was spreading across the country, the U.S. Trustee ordered that Section 341 Creditors’ Meetings no longer be held in person. Depending on the specific COVID-19 restrictions in your area, Section 341 meetings might still be happening virtually. If you just filed recently, your notice should arrive in the mail shortly with a meeting date and possibly instructions for holding the meeting online or by phone. Payment and filing deadlines — Dates for filings and payments have not changed, and you should assume that the court will still require that all deadlines be met unless you have received a written notice informing you otherwise. In-person signatures — Normally, bankruptcy petitions require a “wet signature” — meaning pen-to-paper, in-person signatures. Depending on where you live and current social distancing restrictions, these requirements might be waived. Changes in the court system due to COVID-19 may differ from one locality to the next. Consult an experienced bankruptcy attorney to help you navigate constantly evolving processes and changing norms, so that you can emerge from bankruptcy as quickly and successfully as possible. Contact a dedicated bankruptcy lawyer to learn about your options [ln::firm_name] represents clients in bankruptcy proceedings and other debt relief matters. For a consultation regarding your case, please call [ln::phone] or contact the firm online.