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What is the difference between Chapter 7 Bankruptcy and Chapter 13?

Chapter 7 bankruptcy and Chapter 13 bankruptcy are two distinct types of bankruptcy filings available under the United States Bankruptcy Code. They cater to different circumstances and have distinct features. The type you choose has a big impact on your financial future, so always consult with an experienced bankruptcy lawyer near you.

Main differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy:


Chapter 7: is also known as “liquidation”, Chapter 7 is specially designed for individuals and businesses who are unable to meet their debt obligations and want to have most of their debts discharged. In Chapter 7 bankruptcy, a trustee is appointed to liquidate the debtor’s assets to repay, and remaining qualifying debts are discharged, providing with a fresh financial start.

Chapter 13: Chapter 13 is often called “reorganization” bankruptcy and is specifically for individuals (not businesses) with regular income who want to restructure their debts to make manageable payments over a three to five-year period. It is an alternative for those who have a regular income and wish to retain their assets while repaying their debts in a structured manner.


Chapter 7: Individuals, married couples, and businesses can file for Chapter 7 bankruptcy. However, to qualify for Chapter 7, the debtor must meet specific income requirements under the means test. If their income is too high, they might be required to file for Chapter 13 instead.

Chapter 13: Only individuals (including sole proprietors) with regular income are eligible for Chapter 13 bankruptcy. The debtor must also have unsecured debts (such as credit card debt and medical bills) below a certain threshold and secured debts (such as mortgages and car loans) below a specific limit to qualify for Chapter 13.

Repayment Plan:

Chapter 7: In chapter 7, there is no reimbursement plan. The trustee liquidates non-exempt assets to pay off creditors, and most qualifying money owed are discharged. Sure debts, including loans of students, supporters of children, and tax money owed, commonly cannot be discharged in bankruptcy 7 bankruptcy.

Chapter 13: detailing how they will pay off their money owed over three to five years. The debtor makes ordinary payments to a financial disaster trustee, who then distributes the budget to lenders as per the approved plan. On the give up of the repayment length, any last qualifying money owed may be discharged.

Asset Protection:

Bankruptcy 7: bankruptcy 7 bankruptcy can also contain the liquidation of non-exempt property to pay off lenders. Every kingdom has its very own set of exemptions that defend positive belongings from being bought all through the financial ruin technique.

Bankruptcy 13: not like bankruptcy 7, chapter thirteen allows borrowers to retain their belongings and increase a plan to pay off lenders over time without resorting to liquidation.

In summary, Chapter 7 is a liquidation bankruptcy primarily for individuals and businesses seeking a fresh start by discharging most of their debts, while Chapter 13 is a reorganization bankruptcy tailored for individuals with regular income who want to restructure their debts and repay them over a specified period. The choice between Chapter 7 and Chapter 13 depends on the debtor’s financial situation, income level, and goals.

The post What is the difference between Chapter 7 Bankruptcy and Chapter 13? appeared first on InsiderUp.

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