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Should I file bankruptcy under Chapter 7 or Chapter 13?

Of course, a bankruptcy attorney, who understands both the facts of your case and your state law, can best answer this question. However, we can explain the differences between Chapter 7 and Chapter 13 bankruptcies and explain, in general, which filing is appropriate for whom.

We should first explain that the terms, “Chapter 7” and “Chapter 13“, refer to sections of the United States Bankruptcy Code.

  • Chapter 7 Bankruptcy aka the “liquidation” bankruptcy is for lower income individuals (or couples) with high,unsecured debt.
    • Filers must qualify by way of the “means test”. There is more than one way to qualify, so don’t count yourself out if your income is too high to immediately qualify.
    • In theory, a Chapter 7 filer’s assets are sold to pay off his or her creditors. Thus, the term, “liquidation” bankruptcy.
    • In reality, most assets have already been spent down or are protected by bankruptcy exemptions.
    • Some unsecured debts are discharged, meaning they never have to be paid back.
      • Credit card debts, medical bills, and personal loans are eliminated.
      • Criminal fines, student loans, child support, and most tax debts are NOT discharged.
    • The Chapter 7 bankruptcy process takes about 6 months.
  • Chapter 13 Bankruptcy, aka “reorganization” bankruptcy, is for higher income individuals (or couples) either with high debt that can’t be discharged or debt they wish to pay back under more favorable terms.
    • “Reorganization” means that debts are paid back, but under different and more favorable terms. For example, a contract may be renegotiated so that the interest rate is lower.
    • No assets are seized, unless the filer doesn’t want to continue to make the payments. For example, you can keep all your houses, cars, jewels, art, antiques, collections, and other stuff – so long as you meet the repayment terms.
    • A Chapter 13 bankruptcy takes 3 to 5 years to finalize because of the lengthy repayment plan.
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