Chapter 7 vs. Chapter 13

Over the years as a bankruptcy attorney, I’ve found that confusion and uncertainty are often prominent feelings for someone considering filing. Going through financial hardships can be tough enough, and taking the next step can be somewhat overwhelming.

One of the initial questions I get from clients considering bankruptcy is, “What is the difference between Chapter 7 and Chapter 13 bankruptcy?” We’ll use a helpful NOLO article to outline the key differences between the two.

Chapter 7 Bankruptcy

By filing for Chapter 7 bankruptcy, you are essentially asking the court to discharge (or get rid of) almost all the debts you owe. The downside of this is that the bankruptcy trustee can take property that you own that isn’t exempt from collection. They then have the option to sell it and distribute the funds to any of your creditors.

Chapter 13 Bankruptcy

Through Chapter 13 bankruptcy, you file a repayment plan with the court to, over a set period of time, pay back all or a portion of your debt. The amount you’ll have to repay correlates with how much you earn, the types of debt you owe, the amount of debt you owe, and what kind of property you possess.

In Chapter 13 bankruptcy, you don’t lose any property because you commit to funding your repayment with your own income. In Chapter 7, you can choose, from a list of state exemptions, which property you are eligible to keep. Exemption laws differ from state to state, but most typically allow you to keep equity in your home, insurance, retirement plans, public benefits, and tools used at your job under Chapter 7.

If you are considering bankruptcy, I urge you not to go through the process alone. Consult an experienced bankruptcy attorney that can explain Chapter 7 and Chapter 13 in greater detail, along with all other bankruptcy questions you may have.