Should You File Chapter 7 or Chapter 13 Bankruptcy?
If you're struggling with debt and considering bankruptcy, you may be wondering which option is right for you.
Chapter 7 and Chapter 13 bankruptcy can both provide relief, but they work in different ways. The right choice depends on your financial situation, the type of debt you have, and what you're hoping to accomplish.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is often called liquidation bankruptcy. It allows eligible individuals to eliminate many unsecured debts, including credit card balances and certain medical bills.
When you file, a bankruptcy trustee reviews your finances and assets. Some property may be used to repay creditors, but exemptions can protect certain assets. Depending on your situation, you may be able to keep much or all of your property.
Chapter 7 may be worth considering if you're overwhelmed by debt and don't have a realistic way to pay it back. It can be especially helpful for people whose debt comes primarily from credit cards, medical bills, or other eligible unsecured debts.
However, not everyone qualifies. Your income and other financial details may affect your eligibility, and some debts, such as child support and many student loans, generally cannot be eliminated through bankruptcy.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy works a little differently. Instead of focusing on eliminating debt through liquidation, it allows eligible individuals with regular income to reorganize their debts into a repayment plan that typically lasts three to five years.
This option can be helpful if you're behind on your mortgage and need time to catch up, or if you want to keep property that could be at risk in a Chapter 7 case. Depending on the circumstances, Chapter 13 may also help you address overdue car payments.
The key is that you'll need enough income to make your required plan payments. Chapter 13 can give you more time to manage your debts, but it also comes with a longer financial commitment.
What's the Difference Between Chapter 7 and Chapter 13?
Although both options can help you deal with overwhelming debt, there are a few important differences.
Chapter 7 | Chapter 13 | |
How it works | Eliminates eligible debts through a liquidation process | Organizes debts into a repayment plan |
How long it takes | Often a few months | Typically 3–5 years |
Income | Eligibility requirements apply, including the means test when required | Requires regular income sufficient to fund the plan |
Keeping property | Depends on available exemptions, liens, and the property involved | May allow you to keep property while meeting plan requirements |
Catching up on mortgage payments | Generally doesn't provide a long-term plan to catch up on missed payments | May allow you to catch up over time |
Neither option is automatically better than the other. What works for one person may not work for someone with a different income, debt level, or financial goals.
How Do You Know Which One Is Right for You?
Start by looking at your current financial situation and what you need bankruptcy to accomplish. If you have significant credit card debt or medical bills and little ability to repay them, Chapter 7 may be worth exploring if you qualify.
If you're behind on your mortgage, have regular income, and want to keep your home while catching up on payments, Chapter 13 may be a better fit. The same may be true if you have assets that could be at risk in Chapter 7.
You'll also need to consider which debts you owe, how much money you bring in each month, and whether you can afford a repayment plan. These details can make a big difference in determining which option is available and makes sense for you.
Can You File for Whichever Chapter You Prefer?
Not always. Your financial circumstances and bankruptcy eligibility requirements play a major role in determining your options. For example, someone may want to file Chapter 7 but not qualify based on the applicable requirements. Another person may qualify for Chapter 7 but choose to explore Chapter 13 because they need time to catch up on missed mortgage payments.
That's why it's important to understand your options before filing. Choosing a bankruptcy chapter without considering the full picture could affect your property, your repayment obligations, and the relief you receive.
Talk to a Bankruptcy Attorney About Your Options
Deciding to file for bankruptcy is a big step, and figuring out which chapter is right for you can feel overwhelming. Here at ARlaw Partners, we're here to help you understand your options and find the best path forward based on your financial situation.
If you're considering bankruptcy and aren't sure whether Chapter 7 or Chapter 13 is right for you, our bankruptcy team is here to help. Contact ARlaw Partners today to schedule your free consultation and learn more about your options.
