• Jill Russell

Chapter 7 vs Chapter 13 Bankruptcy

Chapter 7 and Chapter 13 bankruptcy are the two most commonly filed types of bankruptcy. Each is a legal tool to assist you with debt relief if you're no longer able to keep up with your minimum payments.

During your initial consultation with a bankruptcy attorney at McKinney & Associates, they will help you discern which option is right for you, depending on your financial situation and goals for the future.


Though there are many differences between Chapter 7 and Chapter 13 bankruptcy, each grants the filer a fresh financial start in the form of a bankruptcy discharge. The discharge is a court order that permanently bans creditors from trying to collect money from you for the discharged debt.


Chapter 7 Bankruptcy

Chapter 7 bankruptcy filers generally get a discharge within 3-4 months after the bankruptcy petition is filed with the United States bankruptcy court.


Once your case is filed, creditors are not allowed to contact you. While bankruptcy law says you have to sell certain property to pay your unsecured creditors, if you are like many filers, you'll be able to keep all of your belongings. This is because bankruptcy exemptions limit what type of property can be used to pay creditors.


When Chapter 7 Is Better than Chapter 13

Chapter 7 is better if:

  • You only have unsecured debt, like credit card debt, medical bills, balances owed after a repossession, personal loans, etc.

  • You don't have a regular income or not enough income to cover your living expenses like housing and food.

  • You don't have any non-dischargeable debts like alimony or child support, or you're current with your payments on these obligations.

  • You're not able to commit to a repayment plan for at least the next 3 years.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves a repayment plan for your creditors. Creditors can object to how much they will receive under the Chapter 13 plan, but once the bankruptcy court approves the plan, all of the affected creditors are bound by it. Importantly, the monthly payment is based on what you can afford to pay.


Unlike in Chapter 7, you may be able to reduce the interest rate and, in some cases even the balance owed, on your car loan by filing Chapter 13. And since creditors receive some money in a Chapter 13 bankruptcy, filers are not required to give up any non-exempt property. Debt that is not repaid is eliminated by a Chapter 13 bankruptcy discharge after the 3-5 year repayment plan is done.


When Chapter 13 is Better than Chapter 7

Chapter 13 is better if:

  • You want to keep property that is not protected by an exemption.

  • You are behind on your mortgage and want to catch up.

  • You have debts that cannot be discharged.

  • You have a car loan with a high interest rate or negative equity from a trade-in.

  • You have multiple mortgages.

  • You owe money to your ex-spouse from a property settlement.

Book Your Consultation

If you are ready to learn more about how bankruptcy could help you relieve your debt, call our office at 719-633-4541 to book your free initial consultation, or click the link to book online.


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