Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?

When consumers contemplate the option of bankruptcy, they are generally contemplating between chapter 7 and chapter 13 bankruptcies.  Chapter 7 is commonly referred to as a “straight” or a “liquidation” bankruptcy, the effect of which is to liquidate (sell off) all of your non-exempt assets (most chapter 7 filers have very little if any non-exempt property) to pay off non-secured creditors.  Upon filing chapter 7, all of your creditors may no longer hassle you for payment of your debts (no more annoying phone calls, letters, etc…).  Upon discharge of your chapter 7, you will be free from most non-secured debt, such as credit card debt and medical expenses.  However, you will not be free from all debt, such as some student loans, debts to the government (such as taxes) and secured debt (such as mortgages and car loans).


In the alternative, a debtor can file for chapter 13 bankruptcy, commonly referred to as “debt restructuring” bankruptcy, the effect of which is to negotiate with your creditors to pay off your debts within three to five years at a lower rate.  Rather than freeing you from your unsecured debt like a chapter 7, chapter 13 simply restructures your debt to a more manageable amount.  In a chapter 13, you don’t have to liquidate any assets (as in a chapter 7) and your credit rating doesn’t take a big hit (like it would in a chapter 7).


For further information, you can call us at (612) 355-2200.