If you’re drowning in debt and considering filing for bankruptcy, you’ll need to decide between Chapter 7 or Chapter 13. These are the two most popular options to choose from under bankruptcy law. Review this guide and consult an attorney who’s familiar with your state’s bankruptcy provisions to help you understand what each chapter entails and if you’re eligible.

The Differences Between Chapter 7 & Chapter 13 Bankruptcy

What is Chapter 7 Bankruptcy?

Chapter 7 is a liquidation bankruptcy that allows you to clear most of your debts without needing to pay back remaining balances. The Department of Justice will appoint a bankruptcy trustee to handle your case and liquidate your assets to ensure your creditors are paid.

Under U.S. bankruptcy law, individuals, partnerships, or businesses can apply for Chapter 7. However, the bankruptcy court will first check your average income and compare it to your state’s median income. If you fall short, you’ll automatically be eligible for Chapter 7 bankruptcy. If your income is higher than the threshold, you’ll need to take a test that reviews your expenses to see if you’ll have money left over to pay off your debts.

What is Chapter 13 Bankruptcy?

Chapter 13 is known as reorganization bankruptcy. Instead of liquidating your assets and losing property, you’re required to develop a debt repayment plan. Depending on your income, you’ll pay a certain monthly amount within three to five years before your debts are discharged. To make sure your payment plan is approved the first time, have a bankruptcy law attorney assist with creating it. 

Only individuals are allowed to file Chapter 13 bankruptcy. There are no income requirements, so you can apply regardless of how much you earn. However, the law has limits on how much you can owe before you’re eligible. As of 2019, unsecured debts—like credit cards or medical bills—shouldn’t surpass $419,275, while secured debts, such as mortgage and auto loans, must not exceed $1,257,850.

If you need help filing for bankruptcy, contact the law offices of Steven P. Ciardiello, Esq, PC. Steven has over 30 years of experience handling bankruptcy law, estate planning, personal injury, and other civil cases. He has earned a reputation for excellence among residents in Hamden, CT, and the surrounding areas. To discuss your legal issues, visit his website, or call at 203-248-8000.