The Differences Between Chapters 7 and 13 Bankruptcy

More than likely you probably know someone who has filed for bankruptcy. After all, in 2009 alone there were some 1.4 million people who sought a fresh financial start.

But what are the differences between the two different types of bankruptcy filings?

Usually when people talk about bankruptcy, they are specifically referring to Chapter 7.

Chapter 7 seeks to relieve someone from a debilitating amount of debt while liquidating as few of their possessions as possible. This is also called straight bankruptcy. Unsecured debts such as medical expenses and credit cards typically do not have to be paid back. Secured debt does, however, if the debtor intends to keep the asset securing the debt, like a car loan. This is accomplished through a reaffirmation agreement, a contract between the debtor and the lender for repayment of the loan in exchange for keeping the asset.

The benefit of filing for Chapter 7 is that you are relieved from a large portion of debt in a speedy manner, while also benefitting from a court order that bars collectors from harassing you for payment over the phone, via e-mail or in person. The downside to Chapter 7 is that in some cases your valuables are liquidated.

To file for Chapter 7, one must pass the median income test. The median income test, and its companion, the means test, is a formula that is used to determine whether or not the person seeking to file has enough money to make small payments to creditors. If so, they must file for Chapter 13 bankruptcy instead of Chapter 7. These tests were added in 2005 when the bankruptcy code was amended to stop the onslaught of Chapter 7 bankruptcies.

If you “fail” the median income test and means test, you must file for Chapter 13, which is essentially a restructuring of your debt. The consumer works with the bankruptcy trustee on a payment plan, which usually takes place over a 3- to 5-year period. The disadvantage is that you are not immediately relieved of massive debt, but many people prefer Chapter 13 over Chapter 7 because it offers greater protection of your assets.

Whatever option is chosen, it is important to discuss these matters with an experienced bankruptcy attorney.

O. Reginald (“Reggie”) Osenton is the Owner and President of Osenton Law Offices, P.A. If you need a Brandon bankruptcy lawyer, Tampa bankruptcy lawyer, or Tampa bankruptcy attorney, call 813.654.5777 or visit