The Differences Between Chapter 7 and Chapter 13

Chapter 7 vs. Chapter 13: The biggest difference between Chapters 7 & 13 bankruptcies is the repayment of your debt. Chapter 13 bankruptcy involves a court-ordered repayment plan where a portion of your debt back is repaid to your creditors. In a Chapter 7 bankruptcy, there is no repayment plan and certain debts can simply be eliminated.

Bankruptcy Basics

Chapter 7 bankruptcy & Chapter 13 bankruptcy both serve the same purpose: to provide relief for your debts. While they ultimately serve the same goal, each Chapter’s approach in achieving this goal is vastly different, and a bankruptcy attorney can help explain the intricacies of each.

Going Bankrupt: Repayment of Your Debt

The biggest difference between Chapters 7 & 13 bankruptcies is the repayment of your debt. Chapter 13 bankruptcy involves a court-ordered repayment plan where a portion of your debt back is repaid to your creditors. In a Chapter 7 bankruptcy, there is no repayment plan and certain debts can simply be eliminated.

Length of Chapter 7 and Chapter 13 Bankruptcy Process

The second major difference between the two chapters is the time it takes to complete each chapter’s filing process. While a Chapter 7 bankruptcy filing usually only takes 4-6 months to complete, a Chapter 13 bankruptcy is a much longer procedure and usually lasts 3-5 years.

Protecting Assets v. Possible Liquidation

Your assets are protected in a Chapter 13 bankruptcy and the bankruptcy can even help you save assets that are facing foreclosure or repossession — such as a house or car. Since a Chapter 13 bankruptcy is not a liquidation bankruptcy, you are able to keep your assets even if your state’s exemptions do not completely protect them. In a Chapter 7 bankruptcy, although it rarely happens, the Bankruptcy Court can liquidate your assets if they are not protected by your state’s bankruptcy exemptions. Your state probably has a specific exemption to protect a portion of the equity in your house or car.

View the bankruptcy exemptions in your state.