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What is the Difference Between Chapter 7 and Chapter 13

Oct. 11, 2021

When the time comes to consider filing bankruptcy, there are two ways to go: Chapter 7 and Chapter 13. Bankruptcy allows you to reduce or eliminate your debt, but the decision to file should not be taken lightly.

How Does Bankruptcy Work?

Bankruptcy allows you to obtain a fresh start by discharging your liability on debt.


Eligibility for bankruptcy is based primarily on your income. Chapter 7 requires you to have a below-median income for your state or to pass a means test to consider whether you can be expected to repay your existing debt with your current disposable income. If you don’t mean the Chapter 7 requirements, you should consider using Chapter 13. To use Chapter 13, you need to have a regular income, unsecured debt in an amount under $419,275, and secured debts (like a mortgage or car loan) of no more than $1,257,850 (2021 limits).

Chapter 7 Process

Chapter 7 is called “liquidation” bankruptcy. It is available to businesses and individuals who must meet the disposable income means test. The process takes approximately three to four months. During the process, the bankruptcy trustee is assigned to your case to determine whether he/she can sell any non-exempt property to provide funds to pay creditors a portion of what they are owed. In the vast majority of cases, no assets are sold in a Chapter 7 bankruptcy.

Chapter 13 Process

Chapter 13 is a reorganization rather than liquidation. As noted above, there are income limitations to be met in order to qualify for Chapter 13. Chapter 13 takes considerably longer than Chapter 7 and is usually not complete until the end of the three to five-year repayment plan. Unlike Chapter 7 debtors, Chapter 13 debtors keep all of their property but must pay unsecured credits an amount equal to the value of the debtor’s non-exempt assets. Chapter 13 does allow for lien stripping and cramdowns under certain circumstances. The biggest benefit of Chapter 13 is that it allows debtors to keep their property and to catch up on any missed mortgage, car, and nondischargeable debt payments. The downsides to Chapter 13 are:

  • Higher cost

  • Income limits

  • Much longer time frame

Call Us Today to Speak with a St. Louis Bankruptcy Attorney

Deciding which bankruptcy chapter is better for you can be complicated – because bankruptcy itself is complicated. Let us help you resolve your financial difficulties. Often debtors wait too long to file and create additional difficulties for themselves. Contact us today for help in deciding whether and how to file bankruptcy.