Man doing research on a laptop

The Difference Between Chapter 7 & Chapter 13 Bankruptcies

Chapter 7 vs. Chapter 13 Bankruptcy

There are a number of different chapters of bankruptcy available to consumers, however, Chapters 7 and 13 of the United States Bankruptcy Code are the most commonly pursued. They both carry the objective of getting rid of debt for their filers, but they utilize completely different strategies to achieve that goal. Below, our Centennial debt relief team outlines everything you need to know about these two chapters to provide insight into what may be right for you.

Biggest Difference Between Chapter 7 and 13

Apart from the time it takes to complete each chapter, the biggest contrast between Chapters 7 and 13 is that Chapter 7 employs the option of liquidation to pay off debts, while Chapter 13 does not.

With large amounts of different types of debt, Chapter 7 might be more useful to get as much debt out of the way as possible in the shortest amount of time. Adversely, Chapter 13 provides a longer lifetime to allow filers to catch up on all their past-due payments while still maintaining ownership of their property.

Is It Better to File a Chapter 7 or 13?

The type of bankruptcy you file for will depend on the type of debt you have, how much debt you have, and if you have a steady income. Chapter 7 may be the fastest way to discharge your debt, however, if you are not eligible because you do not pass the means test, meaning that your current income is more than the median for a household of your size in Colorado, then you might need to file for Chapter 13.

Chapter 13 works best for those who have a steady income because it requires repaying your debts through a 3 - 5 year repayment plan. Continue reading to learn more about Chapter 7 and Chapter 13.

Chapter 7: A Quick Way to Discharge Your Debt

Chapter 7 bankruptcies are known as “straight” or “liquidation” bankruptcies. It is one of the quickest ways of eliminating several types of eligible debts, taking about 4-6 months to complete, and allows for certain assets to substitute monetary payments in order to cancel out any obligations.

Before debts can be discharged, some pieces of property must be handed over. It is worth noting that while there are many cases in which assets do not need to be liquidated at all, there are circumstances where it may be necessary. Once the non-exempt assets are turned over, qualifying debts can then be permanently relieved.

Here is a brief list of some of the most common debts that can be discharged by a Chapter 7 bankruptcy:

  • Credit card debt
  • Medical debt
  • Personal unsecured debts
  • Past-due rent from an old lease
  • Debts arising from civil judgments

Though there are various types of debts available for discharge, there are certain debts that simply cannot be discharged by bankruptcy. Here are some examples of these kinds of debts:

Chapter 13: Reorganized and Repay Your Debt in 3 - 5 Years

Chapter 13 is known as “reorganization” bankruptcy. Their main goal is restructuring the filer’s payments and creating a plan to be paid off easily without the need to liquidate any assets. This chapter takes a bit longer to complete, about 3-5 years, giving filers plenty of time to fulfill their new payment plan.

Payments under a Chapter 13 plan are typically determined by the difference of subtracting one’s living expenses from their take-home pay. Payments are made to the appointed trustee who takes the responsibility of distributing these funds to the proper creditors seeking compensation.

There are several benefits to filing under Chapter 13 that are unavailable to Chapter 7 filers. Some of these advantages include:

  • Preventing filers from falling further behind by extending the life of their current payments
  • Paying back less than was originally owed, while also receiving a discharge
  • The ability to keep possession over property without the fear of liquidation
  • The possibility of saving their home from foreclosure
  • Preventing repossessions
  • Deferring tax debts and students

What Do Chapters 7 and 13 Have in Common?

Both Chapter 7 and Chapter 13 (as well as every other chapter of bankruptcy) offer a provision called “the automatic stay”. This provision makes any creditor action to collect against you unlawful until the bankruptcy process is complete. This can include the prevention of actions such as wage garnishment, repossession, and even the foreclosure of your home.

This allows filers the time and peace of mind they need to focus on getting rid of their debt without the constant threat and pressure of their creditor(s).

    How Can Help

    Bankruptcy can be a complicated affair for those looking to pursue it alone. If you are looking to gain relief from your debts, our team is committed to finding creative and cost-effective strategies to help you gain the financial freedom you deserve.

    If you would like to learn more about how we can help you get rid of debt, don’t hesitate to contact our award-winning team today at to schedule your free consultation.