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Understanding the Difference Between Chapter 7 and Chapter 13 Bankruptcies


Bankruptcy is a legal process that offers individuals and businesses overwhelmed by debt a fresh start. Under the United States Bankruptcy Code, two common types of bankruptcies are Chapter 7 and Chapter 13. While both aim to provide relief from debt, they differ in their approach and eligibility criteria. In this blog post, we will delve into the distinctions between Chapter 7 and Chapter 13 bankruptcies to help you gain a better understanding of each and make an informed decision if you find yourself in a financial crisis.

Chapter 7 Bankruptcy: A Fresh Start through Liquidation

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the liquidation of non-exempt assets to repay creditors. Here are the key aspects:

  • Eligibility: Chapter 7 bankruptcy is available to individuals, married couples, partnerships, and corporations. However, individuals must pass a means test comparing their income to the median income in their state to qualify.
  • Liquidation: In Chapter 7, a court-appointed trustee sells non-exempt assets to repay creditors. Exempt property, such as necessary clothing and household goods, can usually be retained within certain value limits set by state or federal laws. In many cases, the debtor is able to exempt all property and retain all of their assets.
  • Debt Discharge: Upon completion of Chapter 7 bankruptcy, most unsecured debts, such as credit card debt and medical bills, are typically discharged. This means the filer is no longer obligated to repay those debts.
  • Timeline: Chapter 7 bankruptcy proceedings are generally quicker, lasting around three to six months.

Chapter 13 Bankruptcy: A Repayment Plan for Financial Recovery

Chapter 13 bankruptcy, known as “reorganization bankruptcy,” allows individuals to create a debt repayment plan over a three to five-year period. Here are the key aspects:

  • Eligibility: Only individuals and sole proprietors can file for Chapter 13 bankruptcy. Corporations and partnerships are not eligible.
  • Debt Repayment Plan: Under Chapter 13, filers propose a repayment plan to the court, outlining how they will repay all or a portion of their debts over the designated period. Regular payments are made to a bankruptcy trustee who then distributes the funds to creditors.
  • Asset Retention: Chapter 13 allows filers to retain their assets, such as their home or car, by making ongoing payments through the repayment plan or directly to the creditor. This can be particularly beneficial if the filer wants to avoid foreclosure or repossession and pay the past due amounts through the Chapter 13 plan.
  • Debt Discharge: Upon successful completion of the repayment plan, the filer may receive a discharge of remaining unsecured debts, even if they were not fully repaid.
  • Timeline: Chapter 13 bankruptcy typically lasts three to five years, depending on the duration of the repayment plan.

Choosing the Right Bankruptcy Chapter:

Determining which bankruptcy chapter is suitable for your situation depends on factors such as your income, assets, and debt repayment goals. It’s crucial to consult with a qualified bankruptcy attorney who can evaluate your circumstances and guide you toward the most appropriate option.


Bankruptcy can provide a path to financial recovery for those burdened by overwhelming debt. Chapter 7 and Chapter 13 bankruptcies offer distinct approaches to debt relief, with Chapter 7 focusing on liquidation and Chapter 13 providing a repayment plan. Understanding the differences between these chapters and seeking professional legal advice are vital steps toward making informed decisions about your financial future. Remember, each case is unique, so it’s essential to consult with a bankruptcy attorney to navigate the complexities of the bankruptcy process and find the best solution for your specific circumstances.

Written by Bankruptcy Attorney Lynn Bradley.

Experienced Bankruptcy Attorney

Tucker Griffin Barnes P.C.

With four convenient offices located in Charlottesville, Palmyra, Harrisonburg, and Staunton, VA.

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