The Difference Between a Chapter 7 and 13 Bankruptcy
Over 120 years of combined legal experience advocating debt resolution for our clients.
We look forward to earning your trust.
What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
With more than 120 years of combined experience helping clients find lasting debt relief, our team is here to guide you, and we look forward to earning your trust.
Below, you'll find a helpful overview of the differences between a Chapter 7 and Chapter 13 bankruptcy. Still, the best way to fully understand your options and rights is by meeting with a licensed Michigan bankruptcy attorney. At Acclaim Legal Services, we offer free, no-obligation consultations to help you explore the path that's right for you.
Call us today at 866-965-2857 to speak with a licensed Michigan bankruptcy attorney, or schedule your consultation online at one of our seven Michigan office locations, which are in Detroit, Ann Arbor, Flint, Southfield, Dearborn, Lansing, and Warren. You can also reach us after hours at 248-840-3368 by SMS text or call. Our offices are open Monday through Friday during standard business hours and from 9 a.m. to 12 p.m. on Saturdays.
A Helping Hand
Schedule a free consultation with Acclaim Legal Service to discuss your questions with one of our qualified attorneys.
Take the First StepWhat Is Chapter 7 vs. Chapter 13 Bankruptcy?
If you're considering bankruptcy as a way to resolve your debt, know that you have options. Two of the most common paths are Chapter 7 and Chapter 13 bankruptcy. Chapter 7 offers a fast way to eliminate qualifying debts, while Chapter 13 is structured more like a manageable repayment plan. Each option comes with its own set of benefits and considerations, and understanding those differences is key to choosing the right path for your situation.
Common Questions About the Difference Between Chapter 7 and 13 Bankruptcy
Typical questions surrounding Chapter 7 versus 13 bankruptcy include:
- What are the basic differences between Chapter 7 and Chapter 13 bankruptcy?
- Which solution is best for my circumstances?
- How do I know if filing is right for me?
- How many times can you file a bankruptcy?
The Key Difference Between a Chapter 7 vs. Chapter 13 Bankruptcy: Complete Debt Elimination vs. Debt Consolidation
The main objective of both bankruptcy programs is to provide protection from creditors and lasting debt resolution by obtaining a court order, known as a discharge order, that eliminates the debt.
Although a Chapter 13 program is more commonly associated with repaying creditors, Chapter 13 Plans often involve debt elimination in addition to the repayment. Under a Chapter 13 plan, certain creditors and types of debt — such as a mortgage or property taxes — are repaid, while other types of debt — unsecured debt such as credit card balances, medical bills, or unsecured loans — may be eliminated with little or no repayment if you can demonstrate that your income and assets are limited.
A Chapter 13 Plan’s primary focus is to pay mortgage debt or rent obligations, vehicle loans, delinquent property taxes, and other secured debt obligations. You'll pay those off prior to paying credit cards, medical bills, consumer loans, and other unsecured debts. If there is very little income left after paying your mortgage or rent, car payment, and monthly living expenses — such as food, clothing and utilities — then some or all of your general unsecured debt in the Chapter 13 Plan may be eliminated.
Chapter 7 Bankruptcy Is Primarily a Debt Elimination Program
Chapter 7 is designed to bring swift resolution to debt by eliminating general unsecured debts, such as:
- Credit cards
- Medical bills
- Personal loans
- Loan deficiency debt following repossession or foreclosure
- Judgments and garnishments
- Old utility bills, etc.
Chapter 7 eligibility is largely based on income limitations and demonstrating to the court that you do not have any disposable income after the payment of your fixed expenses. If your income exceeds the allowable guidelines, a Chapter 13 can be proposed to pay only a portion of your debt with a feasible monthly payment based on your budget. Further, Chapter 7 bankruptcy can involve the liquidation of your assets (real estate and personal property) if the value of your assets exceeds the amount the bankruptcy law allows you to protect. If your assets exceed the allowable exemption, a Chapter 13 can be filed to allow a controlled, feasible repayment of a portion of your debt.
Chapter 13 Bankruptcy Is a Debt Consolidation Program
The purpose of Chapter 13 Bankruptcy is to provide broader court protection to stop creditor actions, such as:
- Home foreclosure.
- Vehicle repossession.
- IRS tax levies.
Because filing Chapter 13 is a repayment process, personal property is protected and not subject to sale by a court-appointed Trustee.
When to Choose Chapter 13 Bankruptcy Over Chapter 7 or Other Debt Management Programs
The Chapter 13 Bankruptcy provides many unique debt reduction advantages over a Chapter 7 or other debt management programs:
- Remove a second mortgage or home equity loan(s)
- Reduce your car loan payment through a reduction in the interest rate and, in some circumstances, a reduction in the principal balance
- Defer unsecured debt until secured debt is brought current, setting repayment at 0% interest and likely eliminating a portion of the general unsecured debt with a court discharge at case completion
- Eliminate certain debts that cannot be eliminated in Chapter 7, such as fines and penalties owed to a governmental unit (example: penalties related to overpayment of unemployment benefits)
Overview of Differences between a Chapter 7 and Chapter 13 Bankruptcy
|
CHAPTER 7 |
CHAPTER 13 |
|
|
Timeline |
Court discharge typically within 5 months. | 36 – 60 Month Repayment Plan. |
|
Who Qualifies |
Individuals with household income less than the applicable median income or that can demonstrate that they have little or no monthly disposable income. | Anyone who has household income that can support the necessary repayment terms. |
|
How Often You Can File or Refile |
Every 8 years. Calculated by looking to the date the prior case was filed (not discharged). | Anytime it may be necessary, even if a prior Chapter 7 filing exists within 8 years. Eligibility for discharge will vary depending on prior discharges obtained. |
|
Creditor Actions |
Court protection is enforced from the date of filing. This will put an immediate stop to creditor calls and letters, judgments or garnishments, etc. However, a Chapter 7 does not eliminate secured debts (i.e. mortgage or vehicle) that may be delinquent and debtor is required to be current on the debt or return the collateral. | Chapter 13 will also put an immediate end to creditor calls, lawsuits, judgments, garnishments, etc. However, a Chapter 13 provides broader court protection for the full repayment process to prevent creditor actions, such as: foreclosure, vehicle repossession, judgments, garnishments, levies, etc. |
|
Court Protection of Personal Property |
Chapter 7 allows you to eliminate unsecured debts and surrendered property with legal release of the debt. Non-exempt property could be subject to sale by the court appointed Trustee. Any delinquent payments on personal property subject to a loan (such a vehicle) are subject to repossession by the creditor. All other current secured property will likely require a reaffirmation agreement (re-signing a contract). | All real estate and personal property is under court protection for the duration of the 36 – 60 month repayment process. Any attempted creditor action requires court approval to lift any of these protections during the repayment process. |
|
Impact on Credit Score |
Eliminates unsecured debt and therefore provides and immediate reduction in debt-to-income ratio. Recent credit report data projects the majority of our Chapter 7 clients will experience an increase in their credit score within 12 months after filing. | Promotes a balanced budget with focus on paying down principal debt. This reduces debt-to-income ratio and creates a positive payment history. These 2 factors alone affect 65% of your credit score according to FICO. Over 80% of our clients see an increase in their credit score during the repayment process after discharge. |
|
Court Filing Fee & Attorney Fees |
Court filing fee: $335.00.The attorney fees are determined based on each individual’s circumstances and can be paid in installments prior to case filing. | Court filing fee: $310.00.The attorney fees are governed by the Court. In most cases, our firm accepts payment of the fees only through court-ordered repayment plan (vs. paying out-of-pocket fees up front, thus ensuring your attorney fees are paid from funds that would otherwise be payable to unsecured creditors, benefitting you). In most cases, only the court filing fee is required to file the case and get the court protection in place. |
|
Court Appearances |
One mandatory hearing: 341 First Meeting of Creditors.This is an informal hearing held by the court appointed Trustee. | One mandatory hearing: 341 First Meeting of Creditors.There is a second hearing called the Confirmation Hearing. Often, clients are not required to appear at this hearing. At this hearing our proposed repayment plan is confirmed or approved by the court. |
|
Credit Counseling Requirements |
Credit counseling has two parts and the cost ranges from: $14 – $25.00. The first portion of counseling, Pre-Filing Credit Counseling, is required to be completed at least one calendar day before the case is filed with the court. The second half of the counseling requirement is called the Debtor Education Course and has to be completed before a discharge will be issued. Failure to file either portion of credit counseling at the required time will lead to case dismissal. | The same requirements exist for Chapter 13 as they do for Chapter 7 in this area. The only difference is that clients have a longer period of time to complete the second half of counseling based on the length of their Chapter 13 plan. |
|
Paperwork |
This is a broad overview of the initial and necessary paperwork that is filed with the court:
|
The main difference for the required Chapter 13 bankruptcy paperwork the following document is NOT required for filing:
But additional paperwork does include the:
|
Which Chapter Is Right for Me?
While both programs share some similar aspects and outcomes, they take different paths to get there. These are some of the key variables that often help determine which Chapter is best for you:
- Income
- Assets
- Type of debt you are seeking to resolve
- Long-term objectives
Income
Chapter 13 bankruptcy may be a good fit if you have a steady income and need a structured plan to manage your debt. Steady income could include regular employment, but also additional fixed income sources such as disability, social security, and pensions. In contrast, Chapter 7 is typically designed for individuals with lower household income. Eligibility for Chapter 7 is determined through a means test, which compares your income and allowable expenses to state or federal guidelines.
Assets
Chapter 13 can be a great option if you have valuable assets you'd like to protect. While Chapter 7 may require the sale of certain non-exempt assets to repay creditors, Chapter 13 allows you to keep those assets and instead repay your debts through a manageable payment plan.
Type of Debt
Chapter 7 bankruptcy helps eliminate unsecured debts, while Chapter 13 is designed to help you repay secured debts over time and discharge any remaining unsecured debt once the plan is complete.
Long-Term Objectives
The choice between Chapter 13 and Chapter 7 bankruptcy depends on your long-term financial goals. Chapter 13 is ideal if you wish to retain your assets and continue working toward rebuilding your financial future through a structured repayment plan. In contrast, Chapter 7 provides a fresh start by discharging your unsecured debts, allowing you to move forward without past financial obligations.
Bankruptcy Attorney in Michigan — Find Expert Help With Acclaim Legal Services
There are a lot of factors that determine which type of bankruptcy, if either, is right for you. Seeking expert guidance is beneficial when evaluating bankruptcy and the difference between Chapter 7 and 13 structures. Acclaim Legal Services can evaluate your circumstances and help you move forward with the best plan for your situation. We provide a free consultation, during which we will:
- Carefully review your current circumstances: debt, income, delinquent bills, assets, and real property.
- Discuss your short and long-term goals.
- Provide a comprehensive evaluation of your available options for debt resolution, including non-bankruptcy options such as debt settlement.
- Discuss your next steps and answer any questions you might have.
Contact Acclaim Legal Services
With over 120 years of combined legal experience, Acclaim Legal Services can offer a compassionate, professional hand through the bankruptcy process. We serve Michigan residents from our offices in the counties of Wayne, Washtenaw, Oakland, Ingham, Macomb, Genesee, Southfield, and Dearborn. Call us today at 866-965-2857 during business hours or use 248-840-3368 to reach our after-hours cell contact (SMS text or call). You can also schedule a consultation online to take the first step toward financial freedom.
We can’t thank you enough for your help over the past 3 years. Your professionalism and patience speaks volumes about you!
My Name is Sandra, I was a client of your establishment and was serviced by Mr. Beach, Mr. Jones and Cindy Mills. All of them have been wonderful to me and took a great care to make sure everything was satisfactory to me. Every time I called they were ready and willing…
We want to thank Mr.William Johnson and everyone at Acclaim Legal Services for assisting us throughout our Chapter 13 plan, always available, always ready to assist us, such a long journey, so many ups and downs to finally, getting through these 5+ long years, thankfully it is now over, this has
I wanted to let you know about your staff and the support they all showed my wife and myself.
From our first meeting with William in his office to Cindy answering all our questions and time spent on the phone many thanks to her, along with Chris looking…