Chapter 7 vs. Chapter 13 Bankruptcy

Which Option Is Best For Me?

Most are aware of the terms “Chapter 7 Bankruptcy” and “Chapter 13 Bankruptcy” but few may understand the main differences between the two as well as which type of bankruptcy is best for their unique situation.

The chart below compares the two and will help you decide which one is best for you. Of course, it is always a good idea to contact a professional Bankruptcy Attorney but the chart is designed to help consumers facing bankruptcy to better understand the differences between the two.

Chapter 7 vs. Chapter 13 Bankruptcy

Chapter 7 Bankruptcy

Chapter 13 Bankruptcy

Type of Bankruptcy

Liquidation

Reorganization

Who Can File?

Individuals and business entities

Individuals only (including Sole Proprietors)

Eligibility Restrictions

Disposable income must be low enough to pass the Chapter 7 Means Test

Cannot have more than $383,175 of unsecured debt or $1,149,525 of secured debt

How Long Does It Take To Receive A Discharge?

Typically 3 to 5 months

Upon completion of all plan payments (usually 3 to 5 years)

What Happens To Property in Bankruptcy?

Trustee can sell all non-exempt property to pay creditors

Debtors keep all property but must pay unsecured creditors an amount equal to the value of non-exempt assets

Allows Removing Unsecured Junior Liens From Real Property Through Lien Stripping?

No

Yes (if requirements are satisfied)

Allows Reducing the Principal Loan Balance on Secured Debts Through a Loan Cramdown?

No

Yes (if requirements are satisfied)

Benefits

Allows debtors to quickly discharge most debts and get a fresh start

Allows debtors to keep their property and catch up on missed mortgage, car and non-dischargeable priority debt payments

Drawbacks

Trustee can sell non-exempt property and this does not provide a way to catch up on missed payments to avoid foreclosure or repossession

Debtors must make monthly payments to the trustee for 3 to 5 years and may have to pay back a portion of general unsecured debts

Considering Bankruptcy?

If you are seriously considering Bankruptcy as an option to get out from under your debt,
contact us today to schedule a consultation.