What is the Largest Difference Between Chapter 7 and Chapter 13 Bankruptcy

Fleysher Law Bankruptcy & Debt Attorneys helps you understand the differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy. We work with you to evaluate your financial situation, including the amount of unsecured debt and secured debts, and determine which option is best for you. 

The two most common types of bankruptcy are Chapter 7 and Chapter 13. Both can help individuals and businesses get relief from overwhelming debt, but they work in different ways. Chapter 7 is a fast process that eliminates many debts, while Chapter 13 involves a repayment plan over time.

Whether you are dealing with medical bills, tax debt, or other financial issues, we guide you through the process to ensure you make the right choice for your future.

The Largest Difference Between Chapter 7 and Chapter 13

The biggest difference between Chapter 7 and Chapter 13 bankruptcy is how debts are handled. Chapter 7 allows for debt discharge without requiring repayment, while Chapter 13 involves a structured repayment plan. 

Chapter 7 Bankruptcy: Debt Discharge Without Repayment

Chapter 7 bankruptcy is the fastest way to eliminate unsecured debts, such as credit card debt, medical bills, and personal loans. In Chapter 7, most of your unsecured debts are completely wiped out, offering a fresh financial start. This process is called debt discharge, meaning you no longer owe money on those debts.

One of the main advantages of Chapter 7 is that it allows you to keep your exempt property, like clothing, household goods, and sometimes a car or home, depending on the value. However, secured debts, like mortgage payments or car loans, may still require repayment if you want to keep the property.

If you are behind on mortgage payments or car loan payments, you may need to find a solution with the lender, as these debts are not typically discharged in Chapter 7.

Chapter 13 Bankruptcy: Structured Debt Repayment Plan

Chapter 13 bankruptcy works differently from Chapter 7. Instead of eliminating your debts, Chapter 13 involves creating a repayment plan that lasts 3 to 5 years. You make monthly payments to a bankruptcy trustee, who then distributes the funds to your creditors.

This type of bankruptcy allows you to keep your property, including your home, even if you are behind on mortgage payments or car loans. As long as you stick to the repayment plan, you can avoid foreclosure or repossession. 

Chapter 13 also helps you pay back unsecured creditors like credit card companies and medical bill collectors but at a reduced rate. It can also help you catch up on missed payments or eliminate priority debts, such as tax debt or child support.

While Chapter 13 doesn’t offer a full debt discharge like Chapter 7, it provides a structured way to repay creditors over time, helping you get back on track financially.

Biggest Key Difference: Liquidation vs. Repayment

The key difference between Chapter 7 and Chapter 13 bankruptcy is how they treat debt repayment. Chapter 7 focuses on liquidation, where non-exempt assets are sold to pay off your unsecured debts. If you qualify, most of your unsecured debts, like credit card debt and medical bills, are wiped out completely.

On the other hand, Chapter 13 involves a restructured repayment plan. Instead of liquidating assets, you make monthly payments to a bankruptcy trustee over a period of 3 to 5 years. These payments are used to repay your unsecured creditors, like credit card companies and medical bill collectors. 

Secured debts, such as mortgage payments or car loans, are also included in the plan. You can keep your property in Chapter 13, even if you're behind on mortgage payments. In contrast, Chapter 7 could result in the liquidation of certain assets to pay off debts.

Which Bankruptcy Should You Choose?

Choosing between Chapter 7 and Chapter 13 bankruptcy depends on your financial situation and goals. Both options offer debt relief, but they work in different ways. 

Here's when each option may be a better fit for you:

When Chapter 7 Is Better

Chapter 7 bankruptcy may be the better choice in the following situations:

• You have mostly unsecured debt: If you owe money on things like credit cards or medical bills, Chapter 7 can help eliminate those debts quickly.
• You have little to no property: If you don’t have many assets, like a home or expensive property, Chapter 7 allows for debt discharge without the risk of losing anything important.
• Your income is low: If your monthly income is below the median for your state and you don’t have much to repay creditors, Chapter 7 may be the best option.
• You need a fresh start: If you’re dealing with overwhelming debt and want to clear your financial slate as quickly as possible, Chapter 7 offers a fast resolution, usually within 3-6 months.
• You don't want to repay debts: If you're unable to afford a repayment plan, Chapter 7 may be the right solution to get rid of your unsecured debts.

When Chapter 13 Is Better

Chapter 13 bankruptcy may be a better choice if:

• You have significant secured debts: If you're behind on mortgage payments or car loans, Chapter 13 can help you catch up and keep your property.
• You have a stable income: If you earn regular income and can afford to make monthly payments to creditors, Chapter 13 is designed for those who have enough to repay debts over time.
• You want to protect assets: If you have non-exempt assets you want to keep, like a house or business, Chapter 13 lets you restructure debts instead of liquidating property.
• You have overdue taxes: Chapter 13 can help you manage and potentially reduce certain tax debts by including them in your repayment plan.
• You want to avoid foreclosure: If you're behind on your mortgage and want to avoid losing your home, Chapter 13 can help you catch up on missed payments and prevent foreclosure.

FAQs

Contact Our Bankruptcy Lawyer in Tampa Today

If you're thinking about filing for Chapter 13 bankruptcy or have questions, Fleysher Law Bankruptcy & Debt Attorneys is here to help. Our bankruptcy attorneys are ready to guide you through the process. We know how hard it can be to deal with unsecured debts, missed payments, and other financial problems. We’ll help you determine the best way to handle your situation.

Our team will explain how Chapter 13 bankruptcy works, including how to pay creditors debtors and how you can make monthly payments to unsecured creditors. We’ll work with you to create a repayment plan that fits your budget so you can keep your property and get back on track.

Contact us today for a free consultation. Let us help you get a fresh start and move forward with confidence.