How are Chapter 7 and Chapter 13 Bankruptcies Different?

Businessman having problems while doing paperwork, deadline, overworked, bankruptcy concept.

If you’ve found yourself drowning in debt and unable to get to the surface, you might be considering bankruptcy as an option. It can be a great way to free yourself and get things back on track. 

While researching your options, you have probably come across Chapter 7 bankruptcy and Chapter 13 bankruptcy. They are the most commonly filed chapters amongst married couples, single filers and small business owners. While they’re quite similar, they also have some differences that are good to be aware of before you choose your best route. Let’s take a look at what each Chapter entails. 

What is Chapter 7 Bankruptcy?

Chapter 7 is the most common type of bankruptcy filed. It allows you to completely discharge medical and credit card debt, as well as personal loans, and other unsecured debt. 

It typically takes 4-6 months after filing to get everything discharged. Often referred to as a “liquidation bankruptcy”, this allows you not to be on a payment plan and, essentially, lets you be rid of the debt completely. You are allowed to keep your exempt property, while all non-exempt items are liquidated by the bankruptcy trustee to give to creditors. 

Realistically speaking, most people filing Chapter 7 bankruptcy are allowed to keep everything they own due to exemptions protections. Your qualifications for filing Chapter 7 bankruptcy will be determined by gross household income, with every state having a different median income level. If you don’t qualify for Chapter 7, Chapter 13 might be the best choice. 

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is often used the same way Chapter 7 is, just by those with income too high for Chapter 7 or for those looking for the advantages that come with Chapter 13. 

There are additional debts that Chapter 13 can discharge, such as property settlement awards post-divorce. Additionally, you can sometimes manipulate your secured debts, including second mortgages and car loans. Under Chapter 13, you will be put on a monthly payment plan for 3-5 years, which is determined by your income/expenses or by the overall reason you’re filing for bankruptcy, such as repaying taxes, making up missed payments or paying for unprotected assets. 

However, there are good reasons to file for Chapter 13 even if you qualify for Chapter 7. This includes:

  • Cure Mortgage Arrears – Chapter 13 gives you the ability to pay back overdue mortgage payments (arrears) over the course of up to 5 years. This could save your home from foreclosure by forcing the mortgage company to accept partial moments over time. This can also apply to car loans and HOA payments.
  • Lien Stripping – If you have a second or third mortgage on your home or a home equity line, those loans could be stripped off, which means you won’t have to pay or will only owe a small amount. 
  • Non-Exempt Assets – You may have non-exempt items you’d like to keep. This could be anything from valuable antiques to additional homes and vehicles. Chapter 13 gives you up to 5 years to pay off these assets instead of surrendering them.
  • Repayment of Back Taxes and Back Child Support – Chapter 13 allows for 5 years repayment time for back child support and taxes without levies or garnishment.

Which Is Right For You? 

Both will provide significant relief, which is the main goal of filing for bankruptcy. Your financial situation and personal goals for your property will primarily dictate what route you take.

Contact Severin Law Firm in North Dakota today to discuss the best path for your bankruptcy.


One Response

  1. Hello
    I’m looking forward to seeing if I qualified for chapter 7. And what it cost and all the details

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