How Do Chapter 7 Bankruptcy and Chapter 13 Bankruptcy Differ?

Assuming that you are an individual and are contemplating bankruptcy as an option for debt relief, you may have wondered about the differences between Chapter 7 and Chapter 13 bankruptcies. There are multiple differences between them to carefully consider, assuming that you have already carefully considered bankruptcy in lieu of other options.

Some, but not all of the distinctions between Chapter 7 and Chapter 13 are:

  • How much money do you make? If you make more than the Chapter 7 “means test” allows for, then Chapter 7 may not be available to you. In that case, you may be looking at Chapter 13 more by default than by choice.
  • How heavy is your debt load? Chapter 7 may be best for people who need a “fresh start” by eliminating debts that they may never be able to repay in any event. On the other hand, if you have enough financial resources, especially income, to repay at least some of your debts if you can arrange for a payment plan, then Chapter 13 may be preferable.
  • Are there some important assets that you want to make sure that you can keep? Chapter 7 bankruptcy may require the sale of some assets to raise cash to partially pay debtors. Chapter 13 will allow you to keep more kinds of property than Chapter 7 would. This may be especially significant if some of the debts you are having trouble with include a mortgage or a car loan.
  • Do you have a co-debtor on some of your debts? Under Chapter 7, creditors can go past you to get at your co-debtor to pay the amount owing. Under Chapter 13, creditors cannot go after your co-debtor during the duration of the bankruptcy.

These points are only some of the ways that the two forms of bankruptcy differ. Probably the most important difference is the first one (the means test): if you make too much money, then it will become the only difference you need to consider. Another factor is simplicity: a Chapter 7 bankruptcy is less time-consuming to go through and does not require an ongoing payment plan.

About seven of every 10 bankruptcies in Ohio and elsewhere in the country are Chapter 7; most of the remainder are Chapter 13 (only around two percent consist of other bankruptcy types).