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Personal Bankruptcy

Chapter 7 vs. Chapter 13

Chapter 7 and Chapter 13 can both provide relief from overwhelming debt, but they work in very different ways. Dennery Law helps individuals understand the differences, evaluate their financial circumstances, and determine which approach may provide the better path forward.

Choosing the Right Chapter

Understanding the Difference Between
Chapter 7 and Chapter 13

Chapter 7 and Chapter 13 bankruptcy are two of the most common options available to individuals seeking relief from debt, but each addresses financial problems in a different way.

Chapter 7 generally does not involve a repayment plan. For qualifying individuals, it can eliminate many unsecured debts such as credit cards, medical bills, and personal loans. A Chapter 7 trustee reviews the debtor’s property, and assets that are not protected by applicable exemptions may be subject to liquidation.

Chapter 13 bankruptcy allows individuals with regular income to reorganize debts through a court-approved repayment plan that generally lasts three to five years. It can provide additional options for catching up on overdue mortgage or vehicle payments, addressing certain other obligations, and retaining property while payments are made under the plan.

The right chapter depends on factors including your income, assets, types of debt, payment history, and long-term financial goals. Dennery Law helps clients evaluate those factors before deciding which bankruptcy strategy may be appropriate.

Chapter 7

May be appropriate for qualifying individuals who are unable to keep up with unsecured debt and want a relatively direct path toward discharge.

  • No three-to-five-year repayment plan
  • May discharge many qualifying unsecured debts
  • Eligibility may involve the Chapter 7 means test
  • Applicable exemptions can protect certain property
  • Nonexempt assets may be subject to liquidation

Chapter 13

May be appropriate for individuals with regular income who need time to reorganize debt, catch up on certain overdue payments, or protect important property.

  • Uses a court-approved repayment plan
  • Plans generally last three to five years
  • May provide time to catch up on overdue secured debts
  • Debtors generally remain in possession of their property
  • Qualifying remaining debts may be discharged after successful completion

Questions to Consider

Which Bankruptcy Option May Be Right for You?

Choosing between Chapter 7 and Chapter 13 requires more than comparing the basic features of each chapter. Your financial history and current circumstances can significantly affect which options are available.

Income and eligibility matter.
Household income and allowable expenses can affect eligibility for Chapter 7, including whether the Chapter 7 means test applies to your situation.

Your property and secured debts matter.
The amount of equity in your home, vehicles, and other assets—as well as whether you are behind on secured payments—can influence whether Chapter 7 or Chapter 13 provides the more appropriate strategy.

Previous bankruptcy cases can matter.
A prior bankruptcy filing or discharge may affect whether another discharge is currently available and which chapter may be used.

There is no single chapter that is best for everyone. Dennery Law can review your income, debts, assets, and objectives and help you understand the advantages and obligations of each option before you decide how to proceed.

Chapter 7 Bankruptcy FAQ

For qualifying individuals, Chapter 7 can provide relief from many unsecured debts such as credit card balances, medical bills, and personal loans. Filing generally stops most collection activity while the automatic stay is in effect, and a successful discharge prevents creditors from continuing to collect debts that have been discharged. Chapter 7 also allows debtors to protect certain exempt property, although nonexempt property may be subject to liquidation. Whether you can keep a particular home, vehicle, or other asset depends on the circumstances of the case and the exemptions available to you.
Eligibility for Chapter 7 depends on several factors, including your income, household size, expenses, debts, and financial circumstances. For many individuals with primarily consumer debts, qualification involves a means test that considers income and certain allowable expenses. Passing the means test does not automatically determine that Chapter 7 is the best option, and additional eligibility requirements may apply. Dennery Law can review your financial situation and help determine whether Chapter 7 or another bankruptcy option may be appropriate.
Possibly. Chapter 7 allows debtors to protect certain property through applicable bankruptcy exemptions. Whether you can keep a particular home, vehicle, bank account, or other asset depends on the value of the property, any liens against it, and the exemptions available in your case. Property that is not protected by an applicable exemption may be subject to liquidation by the Chapter 7 trustee, so your assets should be reviewed carefully before filing.
Filing a Chapter 7 bankruptcy generally triggers the automatic stay, which stops most collection activity while it remains in effect. This can include most collection calls, lawsuits, wage garnishments, and other attempts to collect debts that arose before the bankruptcy filing. Exceptions and limitations can apply, and a creditor may sometimes ask the bankruptcy court for permission to continue certain actions.

Chapter 13 Bankruptcy FAQ

Chapter 13 allows individuals with regular income to reorganize debts through a court-approved repayment plan, generally lasting three to five years. Depending on the circumstances, Chapter 13 may allow you to stop most collection activity, address overdue mortgage or vehicle payments over time, and retain property while making payments under the plan. After successful completion of the plan and satisfaction of the applicable requirements, qualifying remaining debts may be discharged.
Chapter 13 allows an individual with regular income to propose a plan for repaying creditors over time, generally over a period of three to five years. The amount paid through the plan depends on factors such as income, expenses, assets, debts, and the types of claims involved. Payments are generally made to a Chapter 13 trustee, who distributes funds to creditors according to the approved plan.

Chapter 13 may provide a way to address past-due mortgage or vehicle payments while protecting property from certain collection actions.

For example, a homeowner may be able to use a Chapter 13 plan to catch up on qualifying mortgage arrears over time while continuing required ongoing payments. The options available for a vehicle depend on the loan, the vehicle, and the circumstances of the case.

Chapter 13 may be appropriate when an individual does not qualify for Chapter 7, needs time to catch up on secured debts, has property that could be at risk in Chapter 7, or has sufficient income to fund a repayment plan. The advantages and obligations of each chapter are different, so the decision should be based on the individual’s income, property, debts, and financial goals.

READY TO TAKE THE NEXT STEP?

Let’s Talk About Your Options

Financial challenges can be difficult to navigate alone. Whether you are considering personal bankruptcy or exploring options for your business, Dennery Law can help you understand the path forward and make informed decisions with confidence.

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