What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 15, 2022

The difference between chapter 7 and chapter 13 bankruptcy is that chapter 7 is a liquidation bankruptcy, while chapter 13 is a restructuring bankruptcy.

In chapter 7, your nonexempt assets are seized and sold to pay your creditors. In chapter 13, you keep your assets but must create a debt repayment plan.

Is Chapter 13 Bankruptcy Better Than Chapter 7

Chapter 13 bankruptcy is not better than chapter 7, but it does have some advantages. You keep most of your assets under chapter 13, however you are still on the hook for repaying the majority of your debt.

In chapter 7 you may lose your assets but the proceeds will go to your creditors to reduce the amount you owe.

Should I File Chapter 7 Or Chapter 13 Bankruptcy

Chapter 13 and chapter 7 bankruptcies are better for different circumstances.

If your debts are completely unpayable, then chapter 7 is likely the better debt relief option.

If your debts are almost payable but you need more time and/or better terms, then you should file chapter 13 instead.


What does bankruptcy mean?

Bankruptcy is a legal proceeding in which a debtor declares their inability to pay back their creditors.

What are the different types of bankruptcy?

There are three common types of bankruptcy known as “chapters” in the U.S. bankruptcy code, Ch. 7, Ch. 11, and Ch. 13, each with varying criteria and consequences.

What is Chapter 7 bankruptcy?

Chapter 7 is known as a liquidation bankruptcy. Most of your property will be sold to pay off your debts, then whatever debt in excess of the value of your liquidated property will be cleared.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a reorganization bankruptcy. With Chapter 13, you are able to keep your personal property and reorganize your debts to a payment schedule that enables you to pay back your creditors over time (often 3 to 5 years).

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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