Which Chapter Wins In Chapter 7 vs. Chapter 13 Depends Upon The Solution Needed

The best way for to understand the difference between Chapter 7 and Chapter 13 bankruptcies is to focus on the problems they solve and how they solve them.

Chapter 7 bankruptcy can be considered a debt elimination solution.

Chapter 13 bankruptcy can be considered a court-supported payment plan to manage debt.

If you have little to no assets that you want to keep but you need to get rid of a great amount of debt so that you could live a normal life, the Chapter 7 is probably the solution for you. In a Chapter 7, the trustee would gather your assets and sell them to pay off your debts. After the sale whatever debt is left after the trustee sells your assets and pays creditors will be wiped out if it is dischargeable by the law — not all debt is dischargeable or can be wiped out.

Most Chapter 7 cases are “no asset” cases in which most people don’t have assets to sell. For example, you can own a beautiful home and still have no assets. If the home is worth less than what you owe on it, the house is not an asset. If the home is only worth a little more than the liens on the house, then you still might not have an asset that the trustee can sell to pay off debts because that small amount of equity may be your to keep under exemption rules. Since bankruptcy is not designed to leave you destitute, you are allowed to keep or claim as exempt from sale, certain property. Those assets cannot be sold if you claim them under the right state or federal exemptions.

A Chapter 7 can take 3-6 months to complete from the day a petition is filed to the day the court grants a discharge of dischargeable debt.

A Chapter 13 bankruptcy may be best solution when you don’t qualify for Chapter 7 protection for any reason such as you have too much disposable income each month, or you make too much income according to congressional guidelines or you have too much equity in an asset you want to keep.

A Chapter 13 is also the solution you employ to save assets such as a home or a car that may be in arrears.

A Chapter 13 relieves financial pressure because, if you have regular disposable income, you can make a payment arrangement that will give you 3-5 years to clear up any arrears or pay off the debt that you can afford to pay.

In a Chapter 13 you can also get rid of liens against property which is exempt or get rid of second and third mortgages against residences where there is not enough equity to pay those loans if the property was sold on the day of the filing.

In order to accomplish your goals in a Chapter 13, you present a plan to the court and the Chapter 13 trustee. If the plan is viable, you will be allowed to lead your financial life in accordance with the plan until you complete the plan.

As I mentioned earlier a Chapter 13 can last 3-5 years from the date of filing to successful completion of your plan, but in order to enjoy many of the benefits of the 13 you must complete the plan.

In the Chapter 7 vs. Chapter 13 battle, both are effective solutions depending on the needs of the debtor.

Learn More About Chapter 7 vs. Chapter 13

If you want to learn more about Chapter 13 read our  in depth article on Chapter 13.  For more knowledge about Chapter 7 and other bankruptcy related issues also read our Bankruptcy FAQs , which we believe is the best on the internet.   If you think we can do better, contact us at info@pondertuckponder.com and tell us how.

If you want to learn more about how bankruptcy can impact the loan modification process, subscribe and receive a free copy of our ebook, 10 Secrets to Successful Loan Modification by Rhinold Lamar Ponder.


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