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Chapter 7 vs. Chapter 13 Bankruptcy in Pennsylvania: What’s the Difference?

Chapters 7 and 13 of the United States Bankruptcy Code are the two most common types of bankruptcy. Though they both aim to eliminate your debt for good, they do so in entirely different ways. Below you’ll find a guide to how these two chapters differ from each other, as well as the benefits they carry.

Chapters 7 and 13 bankruptcies (along with every other chapter) each give the bankruptcy filer the benefit of “automatic stay”. This is the part of the law that generally stops any and all creditor actions against a debtor throughout the duration of the bankruptcy filing.

Chapter 7

This is known as the “straight” or “liquidation” chapter of bankruptcy. It is usually the fastest and least expensive way of eliminating most kinds of debts, however, the name "liquidation" is misleading because it implies that assets will actually be liquidated (or sold) to pay debts. 

That is almost never true. Instead, almost everyone that files a Chapter 7 case in Pennsylvania keeps all of their property. 

Here is a list of some of the most common debts that can be discharged through Chapter 7:

  • Credit card debt
  • Medical debt
  • Personal unsecured debts
  • Past-due rent from an old lease
  • Debts arising from most civil judgments

There are, however, certain types of debts that cannot be discharged by bankruptcy. Here are some examples of debts that are usually not dischargeable under Chapter 7:

  • Alimony/spousal support
  • Child support
  • Criminal restitution
  • Certain past-due taxes
  • Debts incurred from inuring someone while driving under the influence
  • Student loan debt (usually, but not always, not dischargeable)

Again, Chapter 7 is the fastest chapter of bankruptcy for consumers, taking around 4-5 months to complete. It allows debtors to completely get rid of all eligible debts for good in order to gain the fresh start they have been looking for.

Chapter 13

Chapter 13 is known as the “reorganizing” chapter of bankruptcy. However, the name "reorganization" is misleading because it implies that debts will be reorganized and then paid off. However, for almost everyone that filed a Chapter 13 in Pennslyvania, that description is not true. Instead, in most Chapter 13 cases, a substantial amount of debt is erased without ever being paid at all.

The amount of debt that is paid in a Chapter 13 case is usually calculated based on how much the filer can afford to pay. In other words, how much money is left over from the monthly income after spending on regular living expenses such as rent, car payments, insurance, food, utilities, etc. Some portion of that money would then be paid to an appointed trustee, whose job it is to send your payments to the appropriate creditors.

For some people, a Chapter 13 bankruptcy can help them in ways that Chapter 7 could not. For example: 

  • The payment period for certain secured debts (such as car payments or mortgage payments) can sometimes be extended to allow for smaller payments each month 
  • Possibly saving your home from foreclosure
  • Preventing repossessions
  • Paying back less than you originally owed, while also receiving a discharge
  • Deferring tax debts and students

The biggest difference between Chapters 7 and 13 is that a Chapter 7 case is usually complete in 4-6 months with creditors receiving no money. On the other hand, a Chapter 13 case tends to last 3-5 years, and some creditors usually receive some amount (though not all ) of what is owed. 6 

Most people that file for bankruptcy can accomplish everything they need through Chapter 7. However, for others, Chapter 13 may provide specialized relief, such as allowing time for you to catch up on missed payments while still maintaining possession of your property.

Contact our Pennsylvania Bankruptcy Team Today

We understand the stress and frustration that comes with an unstable financial situation. We are committed to a compassionate and personalized approach to ensure you find the best way to gain financial freedom.

If you have questions about how bankruptcy can benefit you, take advantage of our complimentary case evaluation by contacting us through our website, or give us a call at (570) 458-2008!