What Is The Difference Between A Chapter 7 And A Chapter 13 For Consumers?

Last year, my friend and colleague, Susanne Robicsek, wrote a great comment on the different types of bankruptcies. Susanne covered all the types of bankruptcies, but what I want to do is outline the basic pros and cons between a Chapter 7 and a Chapter 13.

First of all, a chapter 7 is the basic, so-called straight liquidation bankruptcy. It makes all of your dischargeable debts simply go away. Of course, some debts such as child support will never go away, but this process will get rid of credit cards, un-secured loans, medical bills, and even some old income taxes.

The drawback of a chapter 7 bankruptcy is that any property you own that is not exempt can be taken and sold to pay those debts. The type and amount of those exemptions vary from state to state, so check with competent bankruptcy counsel in your area.

A chapter 13 bankruptcy is a re-organization of debt. It will give you a chance to catch your breath, restructure your payments, catch up on a mortgage and discharge a portion or all of your debts at the end of the payment period. As my friend and colleague, Cathy Moran wrote, “chapter 13 is often preferable to a chapter 7 because of its flexibility.” You can modify or even dismiss a chapter 13 plan if circumstances change, and you rarely have to give up any property as you might have to in a chapter 7.

Which chapter is right for you depends on a lot of factors. Talk to a competent bankruptcy attorney.

See also Susanne Robicseq’s article entitled “What is the Difference Between Chapter 7, Chapter 9, Chapter 11, Chapter 12, and Chapter 13 Bbankruptcy?”  and Cathy Moran’s article entitled “How do I Love Chapter 13? Let me Count.”