For most people filing for bankruptcy relief, they will file under either Chapter 7 or 13. In fact, almost all bankruptcies in the United States are filed under Chapter 7 and 13, which account for more than 99% of all filings in the entire country. The other four types of bankruptcies don’t apply to most people. Chapter 11 is a very costly type of bankruptcy mainly utilized by large corporations, although individuals with a very high amount of debt can utilize Chapter 11 if necessary. Chapter 12 is for people who run a farming or fishing business. Chapter 9 is for cities and municipalities, and Chapter 15 is for cross-border cases. Unless you have a very large amount of debt (in the millions) or you run a farming or fishing business, your options will be either Chapter 7 or 13. So what is the difference between Chapters 7 and 13?
Chapter 7 is straight bankruptcy, filed to eliminate all of your debts and get a fresh financial start. A Chapter 7 proceeding provides you with relief relatively quickly (as compared to the other types of bankruptcies). In most cases, you can obtain a discharge (elimination of your debts) in 90 days from the date that you file your case. There are no monthly payments made to the Court. You simply filed, and your debts are wiped out, and your case is usually completed in about 90 days.
Chapter 13 is a repayment case in which you repay some or all of your debts over a three to five year period through a court approved repayment plan. The most common reason that people file for Chapter 13 relief is to repay missed payments on a home loan or to repay back taxes to fend off an IRS garnishment or bank levy. Another reason people may file this type of a repayment proceeding is that they earn too much money to qualify for bankruptcy under Chapter 7. In order to qualify to file straight bankruptcy under Chapter 7 you must pass the Means Test, which looks at your income to see if you make so much money that you can afford to file a repayment case and pay back some of your debt over time. If you make too much money under the Means Test, then you have to file a repayment case and repay some or all of your debt to the extent that bankruptcy law determines you are able to repay your debts.
While there are other differences between a Chapters 13 and 7, the main differences are pointed out above. Essentially, a Chapter 7 is a credit card bankruptcy or a case filed to wipe out medical bills, personal loans, or other unsecured debt. A Chapter 13 case, in contrast, is a proceeding filed to save your home from foreclosure or to repay back taxes. And, as noted previously, your income level may place certain restriction on the types of debt relief that are available to you under your circumstances.