Understanding Differences between Chapter 7 and Chapter 13 Bankruptcy.

Published: Mar 30, 2020

Financial peace from debt freedomYou may have recently experienced a financial setback due to the coronavirus. You may be wondering about debt relief options such as bankruptcy. Debt relief should not be taken lightly, so we are going to delve deeper into the differences between these two types of bankruptcies. The primary difference is that in Chapter 7 bankruptcy, most of your debt may be eliminated irrespective of how much you owe. The Chapter 13 bankruptcy is a payment plan based bankruptcy with similarities to debt settlement.  

Let’s dig into the differences.

Chapter 7 Bankruptcy:

To be eligible for Chapter 7, there are income stipulations based on means-testing that you have to adhere to that are set by the state. For example, if you were filing for bankruptcy in Florida, you may look up Florida bankruptcy to understand specifics for your state. The details around state specific information about income is regulated by the US Department of Justice, and the numbers are dependent on the earnings based on the size of your household and the state you reside in. In case you earn more than the state average, your next move would be to establish whether you have enough left to settle part of your debt.  

The Chapter 7 bankruptcy remains on your credit report for 10 years. It is also often less expensive than a Chapter 13 and less complex. Some people can also do a Chapter 7 bankruptcy on their own. Finally, you may receive the discharge from a Chapter 7 bankruptcy in as little as 90 days. You may be interested to read the pros and cons of a Chapter 7 bankruptcy for more information.

Chapter 13 Bankruptcy:

Another type of debt relief to help deal with debt is via Chapter 13, although it is lengthy and more elaborate. While a Chapter 7 bankruptcy can be finalized in less than 12 months, a Chapter 13 can go up to five years. Moreover, there are restrictions as to the amount of debt you can incorporate.


Filing for Chapter 13 has the same similarities to a structured settlement proposal in debt settlement because, in both cases, you have to settle part or all of your debt. Usually, the money that you’ll part with is hinged upon the sort of debts covered in the bankruptcy, plus the money you owe creditors.

Besides, there is a waterfall of priority of payments, and the very first payment should be to your attorneys and the least priority to your unsecured creditors. The best part about a Chapter 13 bankruptcy is that it is possible to retain most of your assets due to state protection while it may be more difficult to do so in a Chapter 7 if your equity in the asset is above the state or federal bankruptcy exemption amount. For both types of bankruptcy, you may be interested to research state specific articles covering bankruptcy such as filing for bankruptcy in Arizona.


You may be considering different debt relief options because of a coronavirus financial hardship. There are important things to understand between your different options, but an experienced, reputable bankruptcy attorney can walk you through your different options if bankruptcy is the right decision for you.

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