The Difference Between Chapter 7 and Chapter 13 Bankruptcy
The majority of bankruptcies filed in the Unites States are either Chapter 7 or Chapter 13 cases. Whether a Chapter 7 or Chapter 13 bankruptcy is the right
choice for you depends on your income, assets, debts, and your financial goals.
Chapter 7 Bankruptcy
Chapter 7 is a liquidation bankruptcy designed to eliminate your general unsecured debts such as credit cards and medical bills. To qualify for Chapter 7 bankruptcy, you must have little or no disposable income. If your income is too high, you may be required to file a Chapter 13 bankruptcy.
When filing for Chapter 7 bankruptcy, a trustee is appointed to administer your case. The Chapter 7 trustee reviews your bankruptcy papers and supporting documents as well as tries to sell your nonexempt property to pay back your creditors. If you own no nonexempt assets, your creditors receive nothing. As a result, Chapter 7 bankruptcy is typically for low income debtors with little or no assets who want to get rid of their unsecured debts.
Chapter 13 Bankruptcy
Chapter 13 is a reorganization bankruptcy designed for debtors with regular income who pay back at least a portion of their debts with a repayment plan. If you make too much money to qualify for Chapter 7 bankruptcy, you may have no choice but to file a Chapter 13 case. Some debtors choose to file for Chapter 13 bankruptcy due to the many benefits that Chapter 7 bankruptcy does not include (such as the ability to catch up on missed mortgage payments or strip wholly unsecured junior liens from your house).
In Chapter 13 bankruptcy, you get to keep all of your property (including nonexempt assets). In exchange, you pay back all or a portion of your debts through a repayment plan (the amount you must pay back depends on your income, expenses, and types of debt). For this reason, Chapter 13 is commonly referred to as a reorganization bankruptcy. Typically, Chapter 13 bankruptcy is for debtors who can afford to make monthly payments to get caught up on missed mortgage or car payments or pay off nondischargeable debts such as alimony or child support.