Chapter 7 or 13?

Chapter 7 relief is classic bankruptcy or liquidation.  Under Chapter 7 you will repudiate or discharge all of your debts (except debts that are non-dischargeable such as child support), and give up all of your property (except property that is exempted to you such as your retirement program) to your creditors.  You then have the chance to reaffirm debts against property you want or need to keep, such as your car, and you walk away with a fresh start.  When you speak with a lawyer in detail you will learn about some debts that are flatly non-dischargeable and some that are dischargeable only if they are of a minimum age or constitute “hardship.”  You will also learn that most debtors who are on the verge of bankruptcy already have little or nothing left above their exemptions, so they can keep most or all of their property.


Chapter 13 relief is often referred to as a “wage-earner plan.”  It is available to individuals with regular income, because it requires periodic payments to creditors to satisfy part or all of their claims.  To simplify, under Chapter 13 all of your unsecured debts are combined for purposes of payment in installments stretching over three to five years.  You and your lawyer will propose a plan to pay a percentage of your total debt, up to 100%, depending on your projected income and presumed expenses, over the term of your plan.  You can include arrearages on your home mortgage or car payment in the plan.  Since secured creditors have special entitlements to payment anyway, routinely you will propose to pay your regular home mortgage payment outside the plan.  You may also propose to keep your regular car payment outside the plan.


In the past, the choice to file under Chapter 13 and make payments rather than receive full and immediate relief under Chapter 7 was usually based on whether the debtor (1) had non-exempt property which would be lost to creditors in Chapter 7 proceedings or (2) owed arrears on one or more debts against property the debtor wanted to keep, such as a home or car, and could keep the property only by forcing the creditor(s) to accept payment of the arrears over time.  Now, since the law changed in October 2005, any debtor with income in excess of certain predetermined guidelines is required to proceed under Chapter 13 unless special circumstances can be shown.  The 2005 changes also require debtors to undergo credit counseling before they are allowed to file for relief under the Bankruptcy Code.

Monica Morales Urrabazo, Attorney

Explains Chapter 13 vs. Chapter 7


Houston 281-809-7557

San Antonio 210-643-5889

Toll free 1-888-360-6162