The Basics of Bankruptcy: Chapter 7 and Chapter 13


If you’ve begun to consider filing for personal bankruptcy, you’re probably now trying to decide whether Chapter 7 or Chapter 13 bankruptcy is the best option. Here are just a few specific points about both options to get you started:

What it means to file bankruptcy under Chapter 7: 

    • This option is primarily for individuals (rather than businesses) and people generally file for this bankruptcy option when they become overburdened with debts like loans, taxes, and credit card bills.
    • The majority of these debts are liquidated, i.e., you won’t have to pay them back — but there are a few types of debt that are exceptions, such as student loans, taxes, and child support.
    • You’ll most likely lose some personal property and valuable assets under Chapter 7 bankruptcy, but the court will usually allow you to keep basic necessities, like your house and car.
    • Because there is no repayment plan to organize, a standard Chapter 7 bankruptcy timeline is usually about three to six months to file and complete.
    • It’s important to remember, however, that this type of bankruptcy case will stay on your credit report for 10 years after you file, and it will severely limit your opportunities for future loans or lines of credit.

What it means to file bankruptcy under Chapter 13: 

    • Chapter 13 bankruptcy is also a common choice for individuals, and if you have enough steady income to pay off a reasonable amount of debt, the court will require you to file under Chapter 13, even if you’d prefer Chapter 7.
    • The main difference between Chapter 7 and 13 bankruptcy is that a court-ordered repayment plan will be issued under Chapter 13, and you’ll have to repay a reasonable amount of debt rather than having a clean slate to work with.
    • The major advantage of Chapter 13 that convinces people to choose this option is that you get to keep more of your personal property, which would otherwise be confiscated under Chapter 7. Additionally, if you have a lot of debts that would be nonexempt under Chapter 7, a Chapter 13 case will provide more support in terms of organization and reasonable repayments.

Remember, there isn’t one best option for every debtor, and even if you are certain about which option you want to choose, consulting with your local bankruptcy attorney will help you get through the process with much less stress.