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What’s the Difference between Chapter 7 and Chapter 13 Bankruptcy?

When considering filing for bankruptcy, it is easy to become confused about which chapter to file under. Many people believe that it is always in your best interest to file a Chapter 7 bankruptcy, because your debt can be completely eliminated and there is no obligation to repay even a portion of what is owed. However, this is not always the best option.

Chapter 13

For those who have substantial material assets (that they wish to keep), a Chapter 13 may be the best option. Having significant equity in a home is often one reason for filing this way. In addition, those who have accumulated a large amount of debt, but who have no trouble paying common living expenses will often file a Chapter 13. This type of filing will allow you to keep part or all of your material assets and reduce your monthly debt payment, making a single payment to the appointed trustee. A Chapter 13 may also help to protect any cosigners you may have.

Chapter 7

For those who do not have substantial material assets, a Chapter 7 bankruptcy may be the way to go. In addition, if you have little or no money after paying your living expenses each month, this may be the best option. The advantage of Chapter 7 is that you can completely eliminate most or all of your unsecured debt. For secured debt, you must be willing to part with any items that were used as collateral. This is why most people who are struggling, but have little or no secured debt, will often file a Chapter 7 bankruptcy. Click here for more information on Chapter 7 Bankruptcy.


Keep in mind that regardless of which type of bankruptcy you may think is right for you, individuals must also meet certain criteria for each type of filing. For a Chapter 7, you must qualify by taking a "means test" which considers your individual financial details along with the median income for your area. For a Chapter 13, both your unsecured and secured debts must be under a certain dollar amount. To determine what type of filing you qualify for, it is best to contact one of our attorneys for more details.