File for Chapter 7 or Chapter 13 Bankruptcy?

By Cynthia Hsu, Esq. on July 26, 2011 | Last updated on March 21, 2019

Chapter 7 vs. Chapter 13. There are a variety of reasons why consumers may end up filing for bankruptcy. Maybe it's the lack of jobs after a stagnant economy zapped the market, or a business that had promise but ultimately crumbled. Whatever the reason, knowing the differences between Chapter 7 and Chapter 13 bankruptcy can help consumers get back on their feet.

Both are forms of bankruptcy that can give consumers a level of protection against creditors, and in some cases, can even eliminate or discharge debt.

But, what should you file for? Below is a list of things to consider if you're looking to choose between the two.

Chapter 7 Bankruptcy:

  • Not everybody qualifies. You might be forced to file for other forms of bankruptcy if your income over the last six months before filing is equal or less than the median income of your state. A higher income will probably mean you don’t qualify.
  • You want to discharge most of your debt. Under Chapter 7, debt is usually discharged (except for nondischargeable debts like student loans). If you cannot afford to repay your creditors, Chapter 7 might be the way to go.
  • You need fast relief from creditors. Chapter 7 bankruptcies are usually processed relatively quickly compared to Chapter 13 bankruptcies, and can take as little as three months.

Chapter 13 Bankruptcy:

  • You’d like to set up a repayment plan. Under Chapter 13, debt will not necessarily be discharged. Instead, under Chapter 13, the debtor will set up a repayment plan.
  • You want to stop the foreclosure on your home. In most cases, filing a Chapter 13 bankruptcy will stop foreclosure - permanently.
  • You want to prevent your car from being repossessed. If your car is being repossessed, a Chapter 13 filing can help you repay the car and stop your car from being taken away.
  • Some debts are dischargeable under Chapter 13, but not under Chapter 7. These debts can include debts incurred to pay nondischargeable taxes, fees from a condo, court fees, or marital debts agreed to in a settlement agreement (but not orders of support).

Choosing between Chapter 7 and Chapter 13 bankruptcy can be difficult, especially given the gravity and importance of the decision. Consulting a bankruptcy attorney that can break down Chapter 7 vs. Chapter 13 for you may also be useful in determining the best choice for your situation.

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