Note: This is not legal advice, but instead practical information that applies to the majority of cases. Please do not rely upon this information without a consultation with a qualified attorney. Prepared By Chris Rampley, Attorney at Law

How it works

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.

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.

Requirements

• 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.

• 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.

Does it apply to every type of unsecured debt?

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.

You'll have to repay some or all of your secured and unsecured debts over three to five years.

Can Your House Be Taken?

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.

Not if you stay current on mortgage payments.

Can Your Vehicle Be Taken?

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.

Not if you stay current on the payment plan.

How long does it stay on your credit reports?

Up to 10 Years

Up to 10 years, likely closer to seven.

Chapter 7
Chapter 13

Is one better than the other? (It depends!)

CHAPTER 7 IS USUALLY BETTER IF:

  • Your problem debts are ones that can be discharged, or forgiven, by Chapter 7, such as medical bills or credit card debt.

  • 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.

  • You don’t think you’d be able to pay off your debts over three to five years.

  • You currently have no income

​CHAPTER 13 IS USUALLY BETTER IF:

  • You make too much to qualify for chapter 7

  • You want to keep certain valuable assets

  • You are behind on your mortgage or car payments and want to make them up over time.

  • 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.

  • You owe a lot of taxes

  • You have nonexempt assets that you want to keep, such as a nicer car or valuable jewelry.

  • 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.

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.