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The Different Types of Bankruptcy Explained

Published on September 30th, 2020

Bankruptcy Lawyer

When discussing bankruptcy, two terms come up a lot: Chapter 7 and Chapter 13 bankruptcy. These are the two primary ways someone can file for bankruptcy, and they are not interchangeable. It is extremely important to understand the distinctions between Chapter 7 and Chapter 13 bankruptcy before you file; you will determine how to file based on your debt amount and resources available.

Chapter 7 Bankruptcy

Chapter 7 is referred to as liquidation bankruptcy; when most people think of filing for bankruptcy, this is the kind that they imagine. Liquidation bankruptcy involves selling off property in order to pay off debt. Both individuals and business entities can file for this kind of bankruptcy.

Chapter 13 Bankruptcy

The other way people can file is through Chapter 13 bankruptcy. Only individuals and sole proprietors can file for this kind of bankruptcy, not business entities. This form of bankruptcy does not involve selling all of your possessions. Instead, the court approves a structured payment plan, and you can keep your property as long as you stick to the plan and make your payments on time. This is called reorganization bankruptcy. Instead of liquidating your assets, the court lets you restructure your debt in order to pay it off more easily.


Aside from the distinction about who can file for Chapter 7 versus Chapter 13 bankruptcy, there are a few key ways that they are different.

Chapter 7 bankruptcy is ideal if you:

  • Are filing as a business entity.
  • Have low disposable income.
  • Need credit card debt or other massive debts discharged.
  • Do not own a home.

Because Chapter 7 bankruptcy involves selling your personal property to pay off as much debt as possible, homeowners will likely have to sell their home as part of the process. For this reason, homeowners should consider filing for Chapter 13 bankruptcy if they are eligible.

Chapter 13 bankruptcy could be ideal for you if:

  • You want to keep your personal property.
  • You have a reliable income. 
  • Your debt does not exceed $395,000. 

Filing for bankruptcy is a daunting financial undertaking and is not to be taken on lightly. If you are having trouble repaying your debts, talk to a bankruptcy lawyer to go over all of your options and determine if filing for Chapter 7 or 13 bankruptcy is the right decision for you. If you do need to file, a lawyer, like a bankruptcy lawyer from the Law Offices of Arcadier, Biggie, & Wood, can help figure out which option best suits your situation.


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