Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

The Differences Between Chapter 7 and 13 Bankruptcy

Many debtors considering bankruptcy often wonder what the difference is between Chapter 7 bankruptcy and Chapter 13 bankruptcy .

Below are a few core differences that every debtor needs to understand:

  1. 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.
  2. 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.
  3. One of the advantages of Chapter 13 bankruptcy is that some types of debt from a divorce can be discharged after the repayment period.
  4. 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.
  5. 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.