What is the Difference Between Chapter 7 and Chapter 13?

by Paige Wright

Typically, when people file bankruptcy, they file one of two different kinds of bankruptcy:  Chapter 7 or Chapter 13.  Chapter 7 is a liquidation bankruptcy.  This means that you can discharge debts without payment to the court; however, if you have any non-exempt assets, or property, the property can be sold to pay back creditors.  This does not mean all of your property can be sold.  Bankruptcy law provides for the protection of property and allows many people to protect everything they own.  Read more about keeping property in a bankruptcy here and you can also read about special protection for firearms here.  No asset Chapter 7 cases typically last 90-120 days from start to finish.

There are many reasons why people do not file Chapter 7 cases.  First, there is an income limit to filing a Chapter 7 case based on where you live and your household size.  If your income exceeds the limit to file a Chapter 7 case, you may be required to file a Chapter 13 bankruptcy.  Second, Chapter 13 cases can protect assets that may otherwise be sold in a Chapter 7 case.  Third, Chapter 13 cases can help people catch up on mortgage or vehicle payments if they are behind on those payments when they want to file a bankruptcy case.

Chapter 13 bankruptcy is a payment plan.  Normally, Chapter 13 cases last between three and five years.  In a Chapter 13 bankruptcy, people typically make a monthly payment to the Trustee, and that money is used to pay back a portion of debt that is owed.  These payments can be made in multiple ways.  You can opt to have wages withheld from your paycheck to pay your plan payment.  This is called a “wage assignment.”  Alternatively, you can mail or go online to make a payment.  Once you have completed all of your plan payments, the remaining dischargeable debt will no longer be owed.

An experienced bankruptcy attorney can analyze your situation and provide you with the best recommendation on what chapter of bankruptcy will help you achieve your financial goals.  You can read more about what happens in an initial consultation here!

Scroll to Top