If you are considering bankruptcy, one of the first decisions you may face is whether to file for Chapter 7 or Chapter 13. Both can provide relief from overwhelming debt, but they work in very different ways.

The biggest difference between Chapter 7 and Chapter 13 bankruptcy is how your debts are handled. Chapter 7 generally focuses on discharging eligible debts without a repayment plan, while Chapter 13 allows you to reorganize your finances and repay some or all of your debts over time.

Understanding these differences can help you determine which option may be better suited to your financial situation.

How Does Chapter 7 Bankruptcy Work?

Chapter 7 is sometimes referred to as a liquidation bankruptcy. A bankruptcy trustee reviews your assets, and property that is not protected by an applicable exemption may be sold to repay creditors.

However, that does not mean everyone who files Chapter 7 loses their property. In fact, many Chapter 7 cases are considered “no-asset” cases because there is no nonexempt property available to distribute to creditors.

Chapter 7 can discharge many types of unsecured debt, including eligible credit card balances, medical bills, and personal loans. Certain debts, however, generally cannot be eliminated through bankruptcy.

Not everyone qualifies for Chapter 7. Individuals with primarily consumer debts may have to complete a means test that considers income and other financial information when determining eligibility.

How Does Chapter 13 Bankruptcy Work?

Chapter 13 works differently because it involves a court-approved repayment plan.

Instead of focusing on the potential liquidation of nonexempt assets, Chapter 13 generally allows individuals with regular income to keep their property while making payments toward their debts. A Chapter 13 repayment plan typically lasts three to five years.

Chapter 13 may be useful if you have fallen behind on certain secured debts. For example, it can provide an opportunity to catch up on past-due mortgage payments over time while keeping your home, assuming you meet the other requirements of your plan.

You must have regular income and meet other eligibility requirements to file under Chapter 13.

Chapter 7 vs. Chapter 13: Which Is Right for You?

Choosing between Chapter 7 and Chapter 13 depends on much more than which type of bankruptcy sounds preferable.

Chapter 7 may make sense for someone who qualifies and primarily needs relief from dischargeable unsecured debts. Chapter 13 may be more appropriate for someone with regular income who needs time to catch up on certain payments or wants to protect property that could otherwise be at risk.

Some of the factors that can affect the decision include your:

• Income and expenses
• Types and amounts of debt
• Home and vehicle ownership
• Equity in your property
• Past-due mortgage or car payments
• Ability to make monthly payments
• Previous bankruptcy filings

Neither chapter is automatically “better” than the other. The right option depends on your individual circumstances and what you need bankruptcy to accomplish.

At Konstantilakis Law, we help individuals and families understand their bankruptcy options and determine which approach may provide the most appropriate path forward. If you’re considering Chapter 7 or Chapter 13 bankruptcy, contact our office for a consultation to discuss your financial situation and available options.

Have questions? Reach out today for a consultation and get clarity on your next steps.