The Big Differences between Chapters 7 and 13

The Big Differences Between Chapters 7 And 13

The two main consumer/small business bankruptcy options are quite different. Each one has its advantages and disadvantages. So, for many people Chapter 7 is much better, for others Chapter 13 would be. And for others it’s a closer call.

Even if you have your mind set on one or the other, it’s important to discuss both alternatives with your lawyer because there very likely are significant advantages or disadvantages you didn’t know about.

Chapter 7 “Liquidation” vs. Chapter 13 “Adjustment of Debts”

The biggest difference is that Chapter 7 focuses on the immediate present while Chapter 13 looks more at the next few years.

Chapter 7 looks at what assets you own at the moment your case is filed, protects those assets which are “exempt,” and discharges(legally writes off) most or all of your debts. Often everything you own is exempt, protected. If you own something that’s not “exempt,” the Chapter 7 trustee would take and sell it and pay your creditors a portion of what you owe from the proceeds. Again, that often doesn’t happen at all.

Chapter 13 also looks at your financial life as of when your case is filed but focuses more on a plan to deal with your creditors in the next three-to-five years. If you do own anything that is not “exempt,” you would more likely be able to keep it in return for possibly paying your creditors something extra.

Power over Special Unsecured Creditors

There are certain special debts that are not discharged in bankruptcy, such as some income taxes, all child and spousal support, most student loans, and a few others.

Under Chapter 7, if you have any of these kinds of debts you need to deal with them after your case is finished. That may be fine if the surviving debt is relatively small and discharging your other debts has made dealing with it manageable.

Under Chapter 13, you can arrange to pay those kinds of special debts through a court-approved payment plan. That usually gives you more control, is based on what you can afford, and protects you from all your creditors throughout the process. This continued protection can be especially important because otherwise the law tends to give these kinds of creditors extraordinarily aggressive collection powers. Also, in some cases—such as income taxes—you will be able to pay less by avoiding ongoing interest and penalties.

Dealing with Secured Creditors

With Chapter 7, you are generally allowed to either keep or surrender any collateral. So you can decide that you can no longer afford your mortgage or vehicle payment and give up the house or car. Or you can arrange to continue making the payments and keep the collateral. But if you are behind on those payments, you will have limited time to catch up, depending on the discretion of the creditor.

In contrast, under Chapter 13 you can usually stretch out payment of your mortgage arrears over the entire three-to-five year plan. You may be able to save a tremendous amount by “stripping” a second or third mortgage if there is no equity in the home covering it. You often don’t need to catch up at all with vehicle loans. Plus you can often reduce your vehicle loan monthly payment, and the total you pay, by doing a “cramdown.”


In overly simplistic terms, a Chapter 7 is more appropriate for simple cases, Chapter 13 for more complicated ones. A little more accurately, Chapter 13 can give you much more power over certain kinds of creditors. I can also better protect any non-exempt assets. But if you do not have those kinds of debt or assets, or not much, then Chapter 7 would likely be the faster and easier option.

If you are in the Dallas-Fort WorthMetroplex, contact me, Carrie Weir, to discuss Chapter 7 and 13 and all your options. I have 20 years of experience doing exactly this. Especially consider calling (at972-772-3083)if you live or work anywhere near Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett, Texas. I’d be happy to provide you a free and confidential consultation, so call me. Or if you want to contact me outside of business hours,use this this contact form .

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