Find the right lawyer now

Chapter 7 vs. Chapter 13 Bankruptcy

Find a Local Finance Lawyer near You

What Is Consumer Bankruptcy?

Consumer bankruptcy is a formal legal process that permits people to get some relief for their debts. These are debts associated with purchases, especially those used with credit and loans. Bankruptcy allows the consumer to get a new start while at the same time resolving issues with lenders.

Consumer bankruptcy is different from business bankruptcy, which applies to business organizations. A person who operates their own business needs to be careful that they understand the differences between consumer and business bankruptcy.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy allows a person to have most of their debts discharged or cancelled. Chapter 7 is often called "liquidation" bankruptcy.

A Chapter 7 discharge can be very helpful for a person because of the fact that their financial obligations and debts will effectively be wiped out. Once a Chapter 7 discharged is filed and granted, the debtor would not be required to pay back the debts that were discharged. Under a Chapter 7 Bankruptcy discharge, not all debts are subject to cancellation. For instance, courts will usually not discharge student loans. The effects of a Chapter 7 discharge can be tricky. The discharge can sometimes affect the person’s credit scores in a negative way. They may also have to take mandatory financial counseling courses.

When Should I File under Chapter 7 instead of a Chapter 13?

You should file a Chapter 7 if the following circumstances apply:

  • You are unable to pay any of the debt even under a repayment plan
  • You need a quick relief from all the creditors
  • Most of the debt that you have is dischargeable  (credit card, personal loans, medical bills)

What Are the Requirements to File Chapter 7 Bankruptcy?

In order to file bankruptcy under Chapter 7, you need to meet the following basic requirements:

  • You reside, have a domicile, have a place of business, or own property in the U.S.
  • It would not be “fundamentally unfair” for the judge to grant bankruptcy
  • Your monthly income is below the median level for a household of your size in your state
  • If your income is above the state median level, you must be able to pass a “means test” (more on this test below)

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows a person to restructure their finances and begin paying off creditors. Their debt will not be cancelled; instead, the person may be allowed to obtain different repayment plans in light of their financial situation. This may be favorable for persons who are beginning to recover financially. Chapter 13 may be more beneficial for a person’s credit ratings in the long run.
Knowing the differences between Chapter 7 and 13 filings can help a person to avoid more financial woes in the future. There are many different filing and eligibility requirements associated with both Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 vs. Chapter 13 Bankruptcy

Chapter 7 bankruptcy allows a person to have most of their debts discharged or cancelled. Chapter 7 is often called "liquidation" bankruptcy.

A Chapter 7 discharge can be very helpful for a person, since their debts will effectively be cancelled. They won’t be required to pay back the debts that were discharged. Not all debts are subject to cancellation. For instance, courts will usually not discharge student loans. The effects of a Chapter 7 discharge can be tricky. The discharge can sometimes affect the person’s credit scores in a negative way. They may also have to take mandatory financial counseling courses.

Chapter 13 bankruptcy allows a person to restructure their finances and begin paying off creditors. Their debt will not be cancelled; instead, the person may be allowed to obtain different repayment plans in light of their financial situation. This may be favorable for persons who are beginning to recover financially. Chapter 13 may be more beneficial for a person’s credit ratings in the long run.

Knowing the differences between Chapter 7 and 13 filings can help a person to avoid more financial woes in the future. There are many different filing and eligibility requirements associated with both Chapter 7 and Chapter 13 bankruptcy.

Can I Switch to a Different Kind of Bankruptcy after Filing?

It may be possible to switch to a different kind of bankruptcy claim after filing. In fact, courts may often require a person to switch from one kind of bankruptcy chapter to another. This is known as "forced conversion" and may occur according to a judge’s discretion. An example of this is when a court requires a person to switch from Chapter 7 to Chapter 13. This can happen if the court finds that the person actually has enough finances to begin paying creditors off. Converting from Chapter 13 to Chapter 7 may also be possible if the person meets the requirements for doing so.

When Should I File under Chapter 13 instead of a Chapter 7?

Chapter 13 is recommended if:

  • You have debts that are not dischargeable in Chapter 7
  • You are in default on mortgages or car payments
  • You have more property than can be exempted under Chapter 7
  • You owe taxes or other debts that are not dischargeable in Chapter 7
  • You want to repay the debt in a manageable way
  • You want to save your home from foreclosure

Do I Need a Lawyer?

Filing for bankruptcy can sometimes be a challenging task. It’s in your best interests to hire a lawyer if you need help filing for bankruptcy. Your attorney can help explain the differences between Chapter 7 and Chapter filings. Your lawyer can also help determine which approach would work best for you. A qualified lawyer can represent you during the process in order to help you.

Photo of page author Kourosh Akhbari

, LegalMatch Legal Writer

Last Modified: 08-25-2015 01:54 PM PDT

Law Library Disclaimer
  • No fee to present your case
  • Choose from lawyers in your area
  • A 100% confidential service
What is LegalMatch?

We've helped more than 4 million clients find the right lawyer – for free. Present your case online in minutes. LegalMatch matches you to pre-screened lawyers in your city or county based on the specifics of your case. Within 24 hours experienced local lawyers review it and evaluate if you have a solid case. If so, attorneys respond with an offer to represent you that includes a full attorney profile with details on their fee structure, background, and ratings by other LegalMatch users so you can decide if they're the right lawyer for you.