Choosing Between a Chapter 7 and a Chapter 13 Bankruptcy

When financial times get tough, as they have for millions of Americans, pressing the “reset” button may be the best route to take. Filing for bankruptcy as an individual can be done through either a Chapter 7 or a Chapter 13 Bankruptcy. Whether a Chapter 7 or Chapter 13 bankruptcy is the right choice for you depends on your income, assets, debts, and your financial goals. Let’s take a closer look at these to see which one may best fit your circumstances.


Chapter 7 Bankruptcy Basics


  • Chapter 7 is also referred to as the Liquidation Bankruptcy as it wipes out unsecured debts such as credit card bills and medical bills.
  • To qualify for Chapter 7 bankruptcy, you must have little or no disposable income. A “means test” will determine if your income level qualifies you for this type of bankruptcy. People with incomes higher than the state median income will have difficulty being eligible for Chapter 7
  • During Chapter 7 Bankruptcy, a trustee is assigned to administer your case and will review all paperwork and will sell nonexempt property to pay back your creditors.
  • Some debts are not included as dischargeable debts in Chapter 7,    such as child support, taxes, and student loans.
  • Typically, a Chapter 7 takes three to five months before a discharge is given.
  • One of the benefits of a Chapter 7 is that it allows debtors to discharge most debts and get a fresh financial start.
  • One of the drawbacks of Chapter 7, however, is that it does not provide a method to catch up on missed or late payments and can not avoid repossession or foreclosure.


Chapter 13 Bankruptcy Basics


  • Chapter 13 is known as the reorganization and repayment type of bankruptcy.
  • For debtors whose income is too high to pass the “means” test required for Chapter 7 Bankruptcy, this is a viable option for bankruptcy.
  • During a Chapter 13 Bankruptcy a trustee evaluates your income and assets to see what payment plan can be worked out to pay off your debt within three to five years.
  • A discharge under this plan occurs after the payments have been successfully made during the time allotted (3-5yrs).
  • The major advantage of filing a Chapter 13 Bankruptcy is that debtors reorganize and consolidate debt and pay off the creditors over a period of time. During the process the debtor keeps his/her property and can catch up on missed or late payments for their mortgage, car, or other items.


If you have questions about which type of bankruptcy you qualify for and which may be best for your situation, call Levine Law at 978.922.8440.


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