Couple filing for bankruptcy

What’s the Main Difference Between Chapter 7 and Chapter 13 Bankruptcy?

By Derek Prosser

If you are experiencing financial difficulties, bankruptcy may be an option for you. The two most common types of bankruptcy filings for individual debtors are chapter 7 and chapter 13 bankruptcy. As a debtor, the type of bankruptcy that is right for you will depend on your specific circumstances. In this article, we discuss the primary difference between chapter 7 and chapter 13 bankruptcy.  

The Primary Difference 

There are several differences between chapter 7 and chapter 13 bankruptcy, but the key one involves the elimination of debt. Although both options involve debt elimination, they go about it in different ways. Specifically, chapter 7 allows a person to completely eliminate his or her unsecured debt after a certain period. Chapter 13, on the other hand, allows a person to reorganize his or her debts while paying back a portion of what is owed. 

Goals and Outcomes of Chapter 7 and Chapter 13 

Although chapter 7 and chapter 13 approach the issue of debt differently, both types of bankruptcy can provide filers with a clean financial slate once the bankruptcy is discharged. However, neither of these options allows a debtor to discharge certain tax responsibilities, alimony, or child support. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows a person who falls below a certain income level to eliminate his or her unsecured debt, such as unpaid medical bills or credit cards. Specifically, chapter 7 offers the following benefits to filers: 

  • No repayment of debt is required.
  • Debtors usually can retain all their assets.
  • All qualifying debts are discharged.

Chapter 13 Bankruptcy

Chapter 13 is a type of reorganization bankruptcy that allows debtors to restructure their debt. Chapter 13 offers the following benefits to debtors: 

  • All collection efforts, property foreclosures, and vehicle repossessions cease. 
  • Debtors can catch up on overdue mortgage payments over time.
  • Debt can be reduced and repaid over a longer period.
  • Debts that aren’t dischargeable can be reorganized, but they can’t be eliminated.
  • Debtors can normally retain their homes, but they are required to repay creditors in an amount that is equal to the amount of their property that isn’t covered by the bankruptcy exemption. 
  • All payments are made to the bankruptcy trustee, who then makes payments to creditors. This relieves debtors from having to directly communicate with creditors once Chapter 13 protection has been granted by the bankruptcy court.

Contact a Dallas Bankruptcy Lawyer 

At Toronjo & Prosser Law, our experienced lawyers provide legal services to clients in the Dallas-Fort Worth community. Our attorneys have a strong reputation for providing dependable service and informed representation in bankruptcy cases. If you are considering filing for bankruptcy in Texas, our lawyers will work closely with you to ensure that your financial future is protected. Contact us today to schedule an initial consultation with a Dallas bankruptcy lawyer

About the Author
Derek Prosser understands that clients need help and need answers and that in order to properly address those concerns, clients need to deal with an attorney first and always, not just an assistant or paralegal.  By effectively counseling from the outset of a case, Toronjo & Prosser Law can anticipate and address potential problems before they arise, as opposed to when they’ve already surfaced (the “Counsel Later” approach), and, in the end, strive for a seamless representation.