The Differences Between Chapter 7 and 13 Bankruptcy
Below are a few core differences that every debtor needs to understand:
- Chapter 7 bankruptcy allows the debtor to discharge their unsecured debts and the case usually lasts a few months at most, while Chapter 13 bankruptcy requires that the debtor repay some or all of their debts over a period of 3 to 5 years.
- It is not the debtor who decides which type of bankruptcy they will file. The debtor must take what is called a “Means Test” to determine whether they qualify for Chapter 7 bankruptcy or Chapter 13 bankruptcy. If the debtor earns “too much” income they will need to file Chapter 13 bankruptcy also known as a wage earner’s bankruptcy. This doesn’t mean that just because someone is working that they must file Chapter 13 bankruptcy as opposed to Chapter 7 bankruptcy. In fact, many wage earners and fully employed people discharge their debts in Chapter 7 bankruptcy.
- One of the advantages of Chapter 13 bankruptcy is that some types of debt from a divorce can be discharged after the repayment period.
- When a debtor files Chapter 7 bankruptcy, income or assets earned after the bankruptcy filing are not generally part of the bankruptcy estate. But when a debtor files Chapter 13 bankruptcy, if their income increases during the course of the repayment plan their Chapter 13 bankruptcy payments could increase.
- One advantage of Chapter 13 bankruptcy is that if a debtor cannot continue the repayment plan they may be able to convert their case to a Chapter 7 bankruptcy under certain circumstances.