Advantages and differences between Chapter 7 and Chapter 13 bankruptcy

On behalf of William Bible at Law Office of W. Thomas Bible, Jr.

Bankruptcy can be an effective option for people with uncontrollable debt, but it is important to understand the different types of personal bankruptcy.

When dealing with serious financial challenges, life can seem hopeless. Fortunately, there is help for Tennessee residents who can’t see any way out of their situation. Credit counseling is often an option, but for people with insurmountable debt resulting from credit cards, medical bills and other forms of debt, personal bankruptcy can be an effective solution.

There are numerous advantages to the two main types of personal bankruptcy, Chapter 7 and Chapter 11, that can help struggling people start over. However, the consequences of filing for bankruptcy, as well as the differences between the two types, should be considered seriously before making a decision on whether bankruptcy is the best option for debt relief.


Chapter 7 is often referred to as the “fresh start” bankruptcy. This is because people who receive a Chapter 7 discharge can be released from most, if not all, of their debt obligations. According to the Administrative Office of the U.S. Courts, people must pass a means test to be eligible for Chapter 7, meaning that their income must fall below a certain amount that prevents them from being able to repay their debt.

Filing a Chapter 7 petition grants the debtor an “automatic stay,” which means lenders are prohibited from initiating or continuing collection actions or lawsuits against the debtor. This alone can be a great relief for those suffering from creditor harassment. Perhaps the greatest benefit to receiving a Chapter 7 discharge is the ability to start over with a clean financial slate.

The consequences to Chapter 7 bankruptcy can include the following:

  • Certain non-exempt assets can be liquidated to repay creditors before the discharge, including the family home.
  • A Chapter 7 bankruptcy stays on an individual’s credit report for up to 10 years.
  • Some types of debt cannot be discharged, such as alimony or child support, government student loans, certain taxes and many types of criminal restitution orders.

In some cases, homeowners may avoid foreclosure even during a Chapter 7 bankruptcy by reaching an agreement with the lender to pay future mortgage payments on time.


Chapter 13 is often used by people who make too much money to qualify for Chapter 7, or by those who wish to repay their debt but need a manageable way to do it. Under Chapter 13, debt is restructured and paid in a monthly sum to a trustee, who distributes the funds to creditors. This payment plan takes three to five years to complete, and some debt may be discharged at the end of this period.

People who make a steady income and wish to hold onto property, such as their home and vehicles, may appreciate the benefits of Chapter 13 bankruptcy. Additionally, they may find that their total monthly debt payments are less than they were before filing for bankruptcy.

Although the worst of the recession is over, these are still difficult times for many families. According to the American Bankruptcy Institute, there were 45,949 non-business bankruptcy filings in Tennessee in 2011. If you’re struggling with unmanageable debt, it can help to speak with a bankruptcy attorney.

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