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The differences between Chapter 7 and 13 bankruptcy

by | Apr 4, 2022 | Blog, Chapter 13, Chapter 7

Debt is overwhelming and stressful. As you work to pay it off, it continues to build, so it seems as though there is no end in sight.

If you are facing lawsuits from creditors or harassment from collections agencies, you should explore bankruptcy as an option for debt relief. As soon as you file Chapter 7 or Chapter 13 bankruptcy, the harassment and lawsuits must stop.

Chapter 7 bankruptcy

Eligibility for Chapter 7 bankruptcy depends on your ability to repay your debt. To qualify, you must pass a means test. This type of bankruptcy involves a trustee selling your nonexempt property to pay what you owe; foreclosure and repossession remain possible. Chapter 7 can dismiss unsecured debt such as credit card debt and medical debt, but not student loans or tax debt. With Chapter 7, also known as liquidation bankruptcy, the goal is to sell off as much as possible to pay what you owe.

Chapter 13 bankruptcy

In contrast to Chapter 7, almost everyone qualifies for Chapter 13 bankruptcy if their secured and unsecured debt falls under specific benchmarks. Check with your state laws to learn the current benchmarks. Chapter 13 involves paying off debt according to a court-structured repayment plan. This type of bankruptcy can protect you from foreclosure and repossession as you will have time to catch up on mortgage and car payments. Chapter 13 is also known as reorganization bankruptcy as the idea is to keep your possessions as you pay back what you owe over three to five years, depending on your payment plan.

Bankruptcy is not a simple fix that will erase all of your debt, but it will help you find your way out from under it. Both Chapter 7 and Chapter 13 bankruptcy stay on your credit report for many years.


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