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Chapter 7 vs. Chapter 13 bankruptcy: What's the difference?

When you are drowning in debt, getting constant harassing calls from creditors, you more than likely are tired of being stressed about your finances. You may be losing sleep at night, feeling like you'll never escape this debt. You might be considering filing bankruptcy. Yet, you don't know that much about it. Should you seek Chapter 7 bankruptcy or Chapter 13? What is the difference between these two forms of personal bankruptcy? 

Chapter 7 bankruptcy basics

About 63% of bankruptcies filed in the United States in 2019 were Chapter 7 debt relief. Some of the reasons Chapter 7 bankruptcies are more popular include the following:

  • Chapter 7 wipes out most unsecured debt, including credit card debt and medical debt.
  • Chapter 7 takes about four to six months to complete.
  • Filing for Chapter 7 stops harassing calls from creditors.
  • In Missouri, Chapter 7 allows consumers to keep their home if they have less than $15,000 equity in it. In Kansas, the homestead exemption is for an unlimited amount.

Those seeking Chapter 7 must qualify for a means test (which includes evaluating if your income is below a set limit). A Chapter 7 bankruptcy will remain on your credit for 10 years.

Chapter 13 bankruptcy basics

Those who don't qualify for a Chapter 7 bankruptcy may file for a Chapter 13 bankruptcy. Chapter 13 bankruptcies come with these advantages:

  • You set up a payment plan to pay your creditors.
  • Creditors may be flexible about your payments or lower your debt amount.
  • Filing for Chapter 13 stops harassing calls from creditors.
  • You can keep the property you are paying debt on.
  • A Chapter 13 bankruptcy only stays on your credit for seven years.

No one should feel shame over filing for bankruptcy. Sometimes, it is the best decision to move forward with a fresh start. Consulting an experienced bankruptcy attorney can help you determine what type of bankruptcy to file and if you should consider other debt relief options.

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