The major dividing line between filing for Chapter 7 bankruptcy versus filing for Chapter 13 bankruptcy is income level. Simply put, only those falling below a certain income level are eligible to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy is normally simpler and takes less time than Chapter 13 bankruptcy. Approximately 71% of all bankruptcy cases are Chapter 7 cases, while the remaining 29% are Chapter 13 bankruptcies.
Beyond the income cutoff, the difference between Chapter 7 versus Chapter 13 bankruptcies can be confusing. The following is a comparison of Chapter 7 and Chapter 13 bankruptcy. For more information, see Chapter 7: How it Works and How Chapter 13 Works.
Mortgages and Car Loans
Chapter 7: This is one of the primary differences between Chapter 7 vs Chapter 13 bankruptcy. Under Chapter 7, you will likely have to return the house or car to the creditor (e.g., the bank) or arrange to pay the item's wholesale value.
Chapter 13: You will likely be allowed to keep the house or car if you stay current with a court ordered payment system.
Debts Owned As A Result of Past Crimes
Chapter 7: Your debts will likely not be discharged if the creditor objects and can demonstrate your prior act (usually through a prior court conviction).
Chapter 13: Although you will be required to pay for them as part of the Chapter 13 plan, the balance may be wiped out if the outstanding debts are not paid in full by the end of Chapter 13 bankruptcy.
Debts Owed for Child Support, Alimony, Student Loans
Chapter 7: Your debts will not be discharged. You cannot avoid support debts through Chapter 7 bankruptcy.
Chapter 13: If you cannot pay these off by the end of Chapter 13 bankruptcy, you will still owe the remaining balance even after bankruptcy is over.
Nonsupport Debts Owed In a Divorce, Property Settlement or Agreement
Chapter 7: If a creditor (often the spouse) objects, then the debt will not be discharged unless you demonstrate that 1) you still will be unable to pay these debts after bankruptcy or 2) the benefit of wiping out this debt exceeds the detriment caused to the creditor.
Chapter 13: Any remaining balance at the end of Chapter 13 bankruptcy will be erased.
Co-Debtors on Personal Loans
Chapter 7: Creditors can seek payment from your co-debtor.
Chapter 13: Creditors cannot reach your co-debtor for the duration of your bankruptcy.
You Have Nonexempt Valuable Property
Chapter 7: You have to surrender your nonexempt valuable property unless you pay the trustee the fair market value for the property or exchange exempt property of equal value provided that the trustee agrees.
Chapter 13: You will keep your nonexempt valuable property.
You Want to Pay the Creditor to Keep Secured Property
Chapter 7: You can pay the wholesale value in a lump sum.
Chapter 13: You can pay the replacement value with interest over time through your bankruptcy.
You Have a Prior Bankruptcy
Chapter 7: You cannot file for Chapter 7 bankruptcy unless the prior bankruptcy was Chapter 13.
Chapter 13: You can re-file.
You File Chapter 7, but Your Income Is Sufficient For Chapter 13
Chapter 7: The court may dismiss your case or convert it to a Chapter 13 bankruptcy.
Chapter 7 vs. Chapter 13 Bankruptcy: Additional Resources
Questions About Bankruptcy? An Attorney Can Help You
While this article explains the differences between Chapter 7 and Chapter 13 bankruptcies, it doesn't answer all your questions -- particularly the details of your unique situation. The good news is that you don't have to spend time running around, looking up all of this information on your own. An experienced bankruptcy law attorney can help put your mind at ease.