What are the Differences Between Chapter 7 and Chapter 13 Bankruptcy?

When filing for personal bankruptcy, it can sometimes be difficult to determine which bankruptcy chapter is the right one for you. Many factors are at play when making this decision, but the first priority for anyone considering either is to learn more about bankruptcy itself.

While there are technically more than two types of personal bankruptcy, the most common options are Chapter 7 bankruptcy and Chapter 13 bankruptcy. These two types of bankruptcy encompass the vast majority of personal bankruptcy cases filed in the United States.

What is the difference between these two bankruptcy chapters? How can you be sure which chapter is the right one for your unique situation? Here is a breakdown of what to expect with either type of bankruptcy – as well as advice from our experienced legal team on how to make the choice that is right for you!


What is Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is also known as liquidation bankruptcy. Your Illinois bankruptcy attorney may also refer to this as a “fresh start” bankruptcy.

The goal of a Chapter 7 bankruptcy is to discharge the majority of your debt. This can give you the clean slate you are hoping for financially, but there are some potential drawbacks. If you own property, a car, or other valuable assets, those assets may be at risk of being seized as part of the bankruptcy to help offset the cost of your discharged debt to creditors.


What is Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy may also be referred to as a restructuring or reorganization bankruptcy. This is because the primary goal of this type of bankruptcy is to reorganize your debts into a more manageable repayment plan.

This type of bankruptcy may be preferable if you need to keep your home, car, and other assets – or if you are just shy of being able to repay your debt and need help creating a workable plan to do so.


Differences Between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy

With the definition of each of these types of personal bankruptcy in mind, it will be much easier to understand the differences between them. While there is some obvious overlap in who might benefit most from either type of bankruptcy, the following points are the best way to determine which one might be the best fit for you:

  • Chapter 13 bankruptcy is only available for individuals, while Chapter 7 can be filed by both individuals and organizations or businesses.
  • Chapter 7 bankruptcy usually lasts 3-4 months, while Chapter 13 may take several years as all payments must be made before discharge.
  • Chapter 7 bankruptcy allows for the discharge of qualifying types of debt, which the debtor is no longer responsible for repaying. Chapter 13 bankruptcy requires the repayment of all debt unless otherwise negotiated but allows for a manageable repayment plan and schedule to do so.
  • During Chapter 7 bankruptcy, the bankruptcy trustee may sell any nonexempt property or assets to recoup lost costs for creditors. During Chapter 13 bankruptcy, debtors may keep these properties or assets. However, the debtors must repay creditors of unsecured debts an amount equal to the value of those properties or assets over the course of repayment.
  • Chapter 13 bankruptcy generally allows debtors to catch up on overdue or missed payments and avoid foreclosure or repossession, while Chapter 7 bankruptcy does not.
  • There are income limits for Chapter 7 bankruptcy, while there are no such limits for Chapter 13 bankruptcy.


Let Us Help You Make the Right Choice

All of this may still leave you confused, conflicted, or frustrated with the terminology and technicalities of bankruptcy. Thankfully, you are not in this alone!

At the Law Offices of David M. Siegel, our experienced team of Chicago Illinois bankruptcy attorneys can help you navigate the difficult bankruptcy process. If you are still unsure which chapter is right for you, give us a call today. Your bankruptcy lawyer will consider the facts of your case carefully and help you make the right decision – as well as guide you through every step of the process.

With our bankruptcy law firm, your initial consultation is free. Contact us today to learn more and get started on the path toward a brighter financial future!

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