Difference between Chapter 7 and Chapter 13 Bankruptcy

If you are considering filing for bankruptcy, you may feel overwhelmed and unsure about where to begin. Struggling with debt can make it seem like you are powerless, but it is possible to take that weight off your shoulders and achieve your financial goals.


One of the aims of bankruptcy is to wipe out certain debts to give an individual a fresh financial start. Depending on your situation, Chapter 7 or Chapter 13 bankruptcy may be the right option for you.


Difference between Chapter 7 and Chapter 13 Bankruptcy - Carosella & Associates


What’s the difference between Chapter 7 and Chapter 13 Bankruptcy?

Most individual bankruptcies filed are Chapter 7 or Chapter 13 cases. With Chapter 7 bankruptcy, only your non-exempt assets are used to repay debt. If you file Chapter 13 bankruptcy, you must repay at least a portion of your debt.


Your income, assets, debts, and financial goals all play a part in determining which type of bankruptcy is the best choice for your circumstances. Consulting with a bankruptcy attorney who knows the ins and outs of bankruptcy law can help you come to a decision that best fits your needs.


Chapter 7 Bankruptcy

Chapter 7 is a liquidation bankruptcy that is designed to get rid of unsecured debts such as medical bills and credit cards. Chapter 7 Bankruptcy is typically for debtors with few assets who want to wipe out unsecured debts.


When you file for Chapter 7, a court-appointed bankruptcy trustee will determine if you have any nonexempt property to sell for the benefit of creditors. He or she will also review recent financial transactions to see if any can be undone to free up assets to repay to your creditors. The trustee will ensure that your non-exempt property is sold to pay creditors as much as possible of what you owe them. If you do not own any non-exempt assets, your creditors will not receive anything. Typically, a seasoned Chapter 7 bankruptcy attorney will be able to protect most, if not all of your assets and all of the unsecured debts will be discharged.


Although there is no homestead exemption in Pennsylvania, Chapter 7 allows consumers to use federal exemptions that protect up to $23,675 of home equity. If you are married filing jointly you may double this exemption. If you are married, jointly held property cannot be taken to satisfy the individual debts of one spouse.


Chapter 13 Bankruptcy

If you make too much money or have considerable non-exempt assets to qualify for Chapter 7, you may have no choice but to file Chapter 13 Bankruptcy. Also called a wage earners plan, Chapter 13 is a reorganization bankruptcy designed for debtors with enough income to pay back at least a portion of their debts over a span of three to five years.


It is similar to a consolidation loan in which you make payments to a trustee, who then pays creditors. However, it is interest free and often a much lower payment than if you were outside of bankruptcy. Chapter 13 can protect your home from foreclosure, allow you to catch up on missed mortgage payments and give you the opportunity pay off debts such as spousal or child support arrears.


Whether you are considering filing for Chapter 7 or Chapter 13 Bankruptcy, there are many advantages and drawbacks to consider. Our experienced attorneys in West Chester will assess your case and help you determine the best course of action to take. For more information, contact Carosella & Associates to schedule a consultation.