Chapter 7 Compared to Chapter 13
What's the difference?
Most individuals file either a Chapter 7 (also called "fresh start" or "liquidation") or a Chapter 13 (also called "personal reorganization"). Some indicators for Chapter 7 or 13 and a few "pros and cons" are:
Type |
Indicators |
Pros |
Cons |
Chapter 7 |
Heavy credit card; signature loans; medical debt. Monthly income is less than monthly living expenses. |
Many debts can be forgiven outright without any repayment requirements. Only takes at few months. |
Limit on how much property you can keep -- may have to give some assets to your creditors |
Chapter 13 |
Foreclosure of home; IRS levy; significant assets you don't want to lose in a Chapter 7. Monthly income usually more than monthly living expenses. |
Keep your property, save home from foreclosure, and control IRS with reduced monthly payment plan -- usually for 3 - 5 years. |
Limit on how extravagantly you can live; must tighten belt. Excess income each month must be paid to creditors. |