Chapter 7 vs Chapter 13

When you consider filing bankruptcy, one important issue to understand is that there are two popular types of personal bankruptcy – Chapter 7 and Chapter 13. To quickly get them out of the way, there are two other prominent types of bankruptcy:

  • Chapter 11 Bankruptcy – it is very rare for an individual to file Chapter 11 Bankruptcy. Typically businesses use this type of bankruptcy to reorganize their assets and repay their debts. You may wish to learn about Chapter 11 Bankruptcy if your attorney recommends it as an option.
  • Chapter 12 Bankruptcy – this type of bankruptcy is specifically designed for debtors who own farms. Debtors filing Chapter 12 Bankruptcy will retain ownership of their farm oand other assets, and will negotiate a payment plan with his creditors. (Chapter 13 bankruptcy is a similar design for individuals.)

Most individuals who file bankruptcy will consider either Chapter 7 or Chapter 13 bankruptcy. And in fact 65% of of all consumer bankruptcies filed in the USA are Chapter 7 bankruptcies. So take the time to research these two types of bankruptcy.

You can learn about each of them in detail on our Chapter 7 Bankruptcy and Chapter 13 Bankruptcy info pages!

What’s the difference between Chapter 7 and Chapter 13 Bankruptcy?

The basic difference between Chapter 7 and Chapter 13 bankruptcy is how you handle your debts. In a Chapter 7 you try to discharge all debts and give up your property, whereas in a Chapter 13 you try to negotiate a payment plan on your debts so you can keep your property.

In a Chapter 7 you dissolve all of your property to pay off what debts you can, and then walk away from as many debts as you can (all of those that are eligible to be discharged). This is typically the most straight forward type of bankruptcy, and may be the simplest and quickest. Consider Chapter 7 if you have no income or a very low income, and you don’t have any hope of paying off your current debt. You may also wish to consider Chapter 7 bankruptcy if you have no significant assets like a home or car to worry about.

Chapter 13 bankruptcy is more interesting to debtors who still have an income and may be able to pay off some or all of their debts given the chance to renegotiate the terms of their loans. You also may wish to consider chapter 13 bankruptcy if you own your own home, own one or more cars, or own other property that you wish to keep after the bankruptcy. Chapter 13 bankruptcy may be more complicated and time consuming, but can help you adjust your loan payments so you can afford them and keep your belongings.