Understanding the Key Differences Between Chapter 7 and Chapter 13

  1. Personal Bankruptcy
  2. Understanding the Key Differences Between Chapter 7 and Chapter 13
Understanding the Key Differences Between Chapter 7 and Chapter 13

You might be thinking of filing for bankruptcy. That decision is a big step, but you also need to choose which kind of proceeding you will file. Understanding the differences between Chapter 7 and Chapter 13 bankruptcies is critical. In this article, we will look at the elements that might help you make an informed decision. However, we strongly encourage you to talk to a bankruptcy attorney before taking any action.

The Basics

Both Chapter 7 and Chapter 13 are types of bankruptcies for individuals. Sometimes a Chapter 7 is called a straight bankruptcy or a liquidation bankruptcy. More on that later. Chapter 13 is sometimes called a wage earner’s plan.

People who find themselves completely drowning in debt might consider Chapter 7 and Chapter 13 as ways to get rid of the debt and move on with their lives. However, there are significant differences to consider.


The paths to Chapter 7 and Chapter 13 discharges are different.

To file a Chapter 7:

  • Only individual, partnership, corporation, or other business entity qualify.
  • You must pass a ‘means’ test. This process involved an analysis of your income and expenses.
  • You cannot have too many “paid for or nonexempt assets” that you want to keep.

To file a Chapter 13:

  • Your unsecured debts must be less than $394,725.
  • Secured debts must total less than $1,184,200.
  • You must be an individual, although being self-employed or operating an unincorporated business is acceptable.
  • You must have some form of income.

Also, people who willfully failed to participate in another bankruptcy within the previous 180 days may not be able to file Chapter 7 and Chapter 13 bankruptcies again.

Treatment of Assets in Chapter 7 and Chapter 13

Chapter 7 and Chapter 13 bankruptcies handle a debtor’s assets differently.

In a Chapter 7 bankruptcy, the bankruptcy administrator may sell non-exempt assets and use the proceeds to pay creditors. Debtors are allowed to keep certain exempt assets. Generally, exempt assets are “necessities of modern life” that the debtor will need to live and work.

Chapter 13 debtors typically keep all their property that they want to keep, as long as they qualify for a Chapter 13. Instead of selling assets, the bankruptcy administrator works with creditors, the debtor, and the debtor’s attorney to develop a repayment plan. The debtor can choose to let some property go back to the creditor if he no longer wants or needs it.

Treatment of Debts

Debts are also handled differently in Chapter 7 and Chapter 13 bankruptcies. Filing a bankruptcy stops most collection efforts, at least for a time.

Bankruptcy administrators in a Chapter 7 case eventually divide creditors into six classes. After selling non-exempt property, if any, the administrator begins paying creditors. However, creditors are paid in order based on their class.

Chapter 13 debtors work with the administrator and creditors to put together a repayment plan. Creditors that have filed claims against the debtor will be paid according to the plan.

Learn More About Chapter 7 and Chapter 13 Bankruptcy

Attorney Leslie Craft has the experience you need to deal with bankruptcy and traffic violations. Ms. Craft’s goal is always to help her clients get past their financial and legal problems and get on with their lives. Consultations are free and only take about 30 – 45 minutes of your time. Your options may surprise and even excite you!

To schedule a free personal consultation, call Craft Law Offices at (252) 752-0297 or email us at lesliecraftlaw@gmail.com. My offices are located in Greenville, Morehead City, and Rocky Mount for your convenience. I also represent clients in surrounding Eastern North Carolina communities, including Warrenton, Elizabeth City, Roanoke Rapids, Goldsboro, and Jacksonville.

Bankruptcy Doesn’t Have to Be a Painful Process.

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