The Difference Between Chapter 7 and Chapter 13 Bankruptcy

When you are overwhelmed by debts and need help, you may think that all bankruptcies are the same. The truth is that liquidations authorized by the courts come in many different forms. Two of the most popular are Chapter 7 and Chapter 13, and they can help clear your debt, but there are restrictions and limitations associated with each. Here are a few of the differences between the two types of bankruptcies.


Not all debts are forgivable under bankruptcy. While common household debts can be liquidated, there are other types of debts that can not. They include:

  • Alimony
  • Taxes
  • Child support

If you owe an overwhelming amount in these three categories, bankruptcy is not the answer to your problems.

Chapter 7

The focus of Chapter 7 is to remove all unsecured debts for those individuals that are unable to make payment plans, have an excess of debt, and have a lower income. For example, the bankruptcy would wipe out medical bills and credit cards. Most people do have to surrender property, assets, and bank accounts to activate the liquidation. The moment the attorney files the documents with the court, there is a “stay” that creates a wall prohibiting creditors from contacting or pursuing money in any way from the filer. A trustee is appointed to the case. He or she reviews the filings including documents, property, and debts. If there is nonexempt property, the trustee will sell it and apply the money from the sale toward the debts. If the filer qualifies, the debts will be liquidated and a mark will be placed on the filer’s credit report for seven years.

Chapter 13

For individuals that own assets they want to hold onto, or those that have a higher income, Chapter 13 is preferred. While this type of liquidation allows the filer to choose the property the trustee can sell-off, it comes with a repayment plan for three to five years where the filer will make one large payment each month to the court that is disbursed to the creditors. As with Chapter 7, the moment the attorney files the documents, the creditors are prohibited from contacting the filer. Failing to make a payment could result in dismissal of the bankruptcy protection, or the case could be shifted to Chapter 7. This bankruptcy also comes with a mark on the filer’s credit report for seven years.

If you have debts you are unable to pay each month, bankruptcy may be the answer to your problems. Arrange for a consultation with a qualified lawyer, like a bankruptcy lawyer from Darrell Castle and Associates, PLLC, to find out.