Providing Meaningful Counsel And
Practical Advocacy Since 1990

Choosing between Chapter 7 and Chapter 13 bankruptcy 

On Behalf of | Apr 3, 2024 | Bankruptcy |

Choosing between Chapter 7 and Chapter 13 bankruptcy is a consequential decision that can significantly impact your financial recovery journey. Both paths offer debt relief but cater to different financial situations and objectives. 

As a result of the fact that these processes are fairly different, understanding the basic ins and outs of each can empower you to make an informed decision that aligns with your long-term financial goals. 

Chapter 7 bankruptcy

Chapter 7 bankruptcy eliminates most of the unsecured debts of low-income filers. A successful process can eliminate credit card debt, medical bills, personal loans and other qualifying overdue balances. 

To be considered eligible for Chapter 7, you must pass a means test. This means that you’ll need to compare your income to the median income for a household of your size in your state. If your income is below the median, you may opt to file under Chapter 7, although Chapter 13 may remain an option, if this pathway is preferable for your circumstances. 

The main advantage of Chapter 7 is the ability to discharge debts quickly and start anew. However, it may result in the loss of some non-essential assets. Chapter 13 is also preferable in instances wherein homeowners are trying to avoid foreclosure. 

Chapter 13 bankruptcy

Chapter 13 bankruptcy allows filers who earn regular income to construct a plan to repay all or part of their debts over three to five years before their remaining eligible unsecured debt balances are discharged. 

The primary feature of a Chapter 13 filing is the repayment plan, which is tailored to an individual’s unique income, debt load and living expenses. It allows filers to catch up on missed mortgage or car payments, and debts typically not dischargeable in Chapter 7, like alimony and child support, can also be included in the plan. Filers make manageable monthly payments to a bankruptcy trustee until the terms of their repayment agreement have been fulfilled. 

Making a decision

You’ll want to thoroughly assess your financial situation, objectives and priorities before choosing between Chapter 7 and Chapter 13 bankruptcy. Yet, if you are unsure of which pathway to debt relief best fits your situation, that’s okay. Seeking personalized guidance is always an option.