Chapter 7 and Chapter 13 Bankruptcy: What’s the Difference?

Chapter 7 and Chapter 13 are the two types of bankruptcy available to individual filers. If you are considering filing for bankruptcy, your income will primarily determine whether you file for Chapter 7 or Chapter 13 bankruptcy. However, there are differences between Chapter 7 and Chapter 13 bankruptcy other than income requirements. Below are the main differences between Chapter 7 and Chapter 13 bankruptcy. 

Chapter 7

Chapter 7 bankruptcy wipes out most unsecured debts. Common unsecured debts include credit cards and medical bills. To qualify for Chapter 7 bankruptcy, a debtor must meet specific income requirements. A debtor who makes too much money must file for Chapter 13 bankruptcy.

When a debtor files for Chapter 7 bankruptcy, an order called an automatic stay immediately stops most creditors from continuing collection efforts. The bankruptcy trustee then sells all nonexempt property to pay back the debtor’s creditors. If a debtor has no nonexempt assets, his or her creditors receive nothing.

Although Chapter 7 bankruptcy is the right choice for low-income debtors with few assets, it can also work for filers whose discharged debt exceeds the value of the property sold.

Chapter 13

Chapter 13 bankruptcy is designed for debtors who have enough money left over every month to pay back at least some of their debts through a repayment plan. Although most Chapter 13 filers make too much money to qualify for Chapter 7, some debtors choose to file for Chapter 13 bankruptcy due to the benefits it offers over Chapter 7.  

In Chapter 13 bankruptcy, a debtor can keep all of his or her property. In exchange, the debtor must pay back all or a portion of his or her debts through a repayment plan. Typically, Chapter 13 bankruptcy is for debtors who:

  • Fail to qualify for Chapter 7 bankruptcy but need debt relief;
  • Have debts that can’t be discharged, such as child support arrears or alimony that they’d like to pay off within five years; or
  • Have fallen behind on a car or house payment and want to catch up on missed payments and keep their property.

The bottom line

If your debt has gotten out of control, you may want to consider filing for Chapter 7 or Chapter 13 bankruptcy. However, before making a final decision, you should consult with a Milwaukee bankruptcy lawyer

Contact a Milwaukee bankruptcy lawyer 

If you are considering filing for bankruptcy in Milwaukee, you need a knowledgeable and experienced Milwaukee bankruptcy attorney in your corner. At Hanson & Payne, we offer bankruptcy and debt negotiation services for individuals in Milwaukee and all of southeast Wisconsin. When you choose us to represent you in your bankruptcy case, we will do everything in our power to protect your interests and see your case through to a successful conclusion. Please contact us today to schedule a consultation.