What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy

Not all bankruptcies are created equal. It may surprise you to know that there are six different types of bankruptcy under U.S. Federal Law. However, many of those bankruptcies apply to businesses, so it is most common to hear about individuals filing a Chapter 7 or Chapter 13. Read on below to learn more about the difference between Chapter 7 and Chapter 13 bankruptcy.

Chapter 7- Liquidation

Chapter 7 is the most commonly filed bankruptcy among individuals. If a person finds themselves owing more money to creditors than they have, or can foreseeably earn, Chapter 7 is the best option. The assets that person owns will be liquated and used to pay off their debts. After that, the bankruptcy is usually dismissed. Chapter 7 is often referred to as a “fresh start”.

Chapter 7 works best for people with low-income and little to no assets. To determine their eligibility, the individual must take a means test as provided by the U.S. Bankruptcy Court. If the individual makes too much money, they’ll have to consider filing for Chapter 13.

Chapter 13- Reorganization

Chapter 13 is often called the “wage earner” bankruptcy, because the individual must have a reliable source of income. Their finances are reorganized into a plan that allows them to pay back their creditors over three to five years while maintaining control and ownership of their assets.

Chapter 13 works best for people who don’t qualify for Chapter 7 but need debt relief, have non-dischargeable debts like child support, or have fallen behind on house/car payments and want to/can catch up on payments.

A Visual Aide

If you are more of a visual learner, reference the chart below:


If you are considering filing a Chapter 7 or Chapter 13, give Kamper Estrada, LLP a call and learn what your options are. Our experienced bankruptcy lawyer in Phoenix, AZ offers a free one-hour consultation.


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