Chris Rampley
Bankruptcy Attorney
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Chapter 7 Vs. Chapter 13
Bankruptcy law is highly specific and complicated, so summaries of Bankruptcy law should never be relied upon in any specific case, but summaries are useful to help answer general questions about how Bankruptcy works. Below you will find a general description of the differences between Chapter 7 and Chapter 13.
Chapter 7
Chapter 13
How it works
Requirements
Does it apply to every type of unsecured debt?
Can Your House Be Taken?
Can Your Vehicle Be Taken?
How long does it stay on your credit reports?
Is one better than the other? (It depends!)
The vast majority of unsecured debts (such as credit cards, medical bills and personal loans) are forgiven. You must thoroughly document your finances and eligibility. You may give up some assets but likely won't have to.
• Must pass the means test if you have primarily consumer debts.
• Budget must not be excessive
• Cannot have filed for Chapter 7 in the past eight years or Chapter 13 in the past six.
No, you must still pay child support and most debts you owe the government, such as most taxes. The court is highly unlikely to forgive student loan debt.
If the equity in your house exceeds exemption levels for your state, it may be sold. Otherwise you keep it as long as you can afford it.
If the equity in your vehicle exceeds exemption levels for your state, it may be sold. Otherwise you keep it as long as you can afford it.
Up to 10 Years
CHAPTER 7 IS USUALLY BETTER IF:
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Your problem debts are ones that can be discharged, or forgiven, by Chapter 7, such as medical bills or credit card debt.
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You don’t have many assets. Many Chapter 7 filers have modest cars and average income. If the value of your possessions falls within the exemption limits, you don’t have to worry about your assets being seized.
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You don’t think you’d be able to pay off your debts over three to five years.
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You currently have no income
​You get court approval of a plan to repay both unsecured and secured debts (such as mortgage and car loans) in part or whole. You'll pay over three to five years and will retain your assets.
• Must have sufficient income.
• Unsecured debt cannot exceed $394,725. Secured debt cannot exceed $1,184,200.
• Must be current on tax filings.
• Cannot have filed for Chapter 13 in the past two years or Chapter 7 in the past four years.
You'll have to repay some or all of your secured and unsecured debts over three to five years.
Not if you stay current on mortgage payments.
Not if you stay current on the payment plan.
Up to 10 years, likely closer to seven.
​CHAPTER 13 IS USUALLY BETTER IF:
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You make too much to qualify for chapter 7
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You want to keep certain valuable assets
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You are behind on your mortgage or car payments and want to make them up over time.
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Most of your debts are student loans, child support or other debts that either can’t or are highly unlikely to be discharged under Chapter 7.
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You owe a lot of taxes
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You have nonexempt assets that you want to keep, such as a nicer car or valuable jewelry.
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You have a co-signer on an indebted account that you can not afford to pay. Chapter 13 allows you to protect co-signers and pay the debt in the payment plan.