Should You Go With Chapter 7 Or 13 Bankruptcy?

Chapter 7 and Chapter 13 bankruptcy represent two very different ways to address your debt load. A Chapter 7 bankruptcy involves the liquidation of all of a debtor's non-exempt assets. The Chapter 13 system allows debtors to keep their assets in exchange for following a court-ordered payment plan that reduces the overall debt load.

Each approach has its virtues. It's important to understand what makes each one appropriate for a given situation so let's take a look.


The first thing a Chapter 7 attorney will want to know is whether a potential client is likely to qualify to file. Notably, the same concern applies to Chapter 13.

Generally, someone has a nearly automatic right to pursue Chapter 7 if they make less than half of their state's median income. Likewise, they must not have filed a completed Chapter 7 case within the last 8 years. The law intends this to discourage abuse of the system.

If you don't automatically qualify, you may still be successful if you can provide proof of unique circumstances. Usually, this involves a sudden drop in income, such as the loss of a job.

When speaking with a Chapter 13 bankruptcy attorney, you'll find qualification is more complex. First, a Chapter 13 bankruptcy lawyer has to prove that their client can pay the current amount they owe. Second, they have to show they can afford to pay a lesser amount. You'll then have to file a Chapter 13 bankruptcy plan, and the judge will determine if it's feasible.

Secured Assets

A secured asset is a physical piece of property that a creditor can reclaim for non-payment. Vehicle loans and mortgages are by far the most common secured assets.

In Chapter 7 bankruptcy, secured assets revert to the creditor. You can restructure secured debts in Chapter 13 bankruptcy, though. If you want to keep a car that you have on a loan, for example, that's only possible through restructuring. Bear in mind, the court doesn't have to go along with it if the judge believes you can't afford to pay.

Exempt Assets in Chapter 7

The law recognizes that people have to continue their financial lives after Chapter 7 bankruptcy. To foster this, the law permits exemptions. An exempt asset is something necessary, such as your clothes, furniture, or dishes. Similarly, the court-appointed trustee may allow an exemption for a practical car for daily living needs. However, the trustee can sell an expensive vehicle and give you the proceeds to downsize to something practical.

For more information, contact a bankruptcy law firm, such as Ozment Law PA.