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The differences between chapter 7 and chapter 13 bankruptcy

On Behalf of | Mar 24, 2023 | Bankruptcy

Bankruptcy is a tool you can use to get a handle on your debt, which is beneficial when incomes drop, such as during a layoff. However, bankruptcy has long-term consequences that individuals should carefully weigh before they begin.

There are two types of bankruptcy, Chapter 7 and Chapter 13. These are the differences.

Chapter 7

Both individuals and businesses can file for Chapter 7 bankruptcy to liquidate the debt. However, the trustee appointed by the court can sell any non-exempt asset to pay off these debts. There are also income restrictions that can prevent some people from filing for Chapter 7 bankruptcy.

This process does not remove liens from real property, nor does it reduce secured loan balances. However, it does discharge most unsecured debt. Although the process is quick, less than six months, it does not provide a way for debtors to catch up on mortgages or other secured debt.

Chapter 13

Individuals and sole proprietors may file for Chapter 13 bankruptcy. This process reorganizes debt rather than discharges it, allowing debtors to keep the property attached to any non-dischargeable or secured debts. However, the process can take up to five years.

Debtors cannot have more than $419,275 and $1,257,850 in unsecured and secured debt, respectively. However, the process can eliminate liens and reduce loan balances. Although the trustee cannot sell the debtor’s property to pay off the debts, these individuals do have to make payments for several years.


Debtors cannot discharge federal student loans, criminal fines, child support, alimony or most federal taxes through bankruptcy. In addition, the trustee cannot sell personal real property, retirement benefits, primary home, one vehicle and tools used to earn a living.

Debtors should file for bankruptcy as a last resort and learn about the features of each type before filing.