There are essentially two chapters of bankruptcy available to individual consumer debtors: Chapter 7, and Chapter 13. Both chapters obtain the same goal: that of discharge from your debt. However, the way they go about obtaining that goal are drastically different.

Chapter 7 bankruptcy is a “liquidation” process, whereas Chapter 13 bankruptcy is a “reorganization” process. Basically, what this means is in a Chapter 7 you disclose all your debts and assets, you get to keep all your exempt assets, and the trustee gets to take and sell your non-exempt assets. It’s typically as straightforward as that. At the end of this “liquidation” process (typically 3-4 months), you receive a discharge of your debt. Conversely, the reorganization process of Chapter 13 is different and more complex because instead of this quick liquidation process, you are put in a 3-5 year repayment plan, where, at the end of each month, you make a pre-determined payment to the trustee. Only at the end of your completed plan do you receive your discharge.

You might be asking why anyone would file a Chapter 13 instead of a Chapter 7. The reason is because there are some restrictions on who can file a Chapter 7. For one thing, there are income restrictions on who can file a Chapter 7. The amount you’re allowed to make depends on your household size and the state you live in. In Utah, for example, a single person must make less than roughly $48,000 a year (gross) to qualify for a Chapter 7. For a married couple the limit is around $55,000. These amounts are changed periodically due to changes with the economy. The amounts continue to go up depending on the amount of dependent children you have in your household. If you make more than the prescribed limit, you will be ineligible for a Chapter 7 and must instead file a Chapter 13.

Another reason you might want to file a Chapter 13 instead of a 7 is for one of the benefits that a 13 offers. For example, if you are delinquent on your mortgage payments a Chapter 7 will do nothing to help you with that. But in a Chapter 13, as long as you have the means to make a sufficient enough payment every month, you can become current on your mortgage through your Chapter 13 plan payments. Many debtors who would otherwise qualify for a Chapter 7 bankruptcy choose to enter Chapter 13 to help with their mortgage situation. Other financial situations might similarly be able to be solved by way of the reorganization plan.

Though both Chapter 7 and Chapter 13 bankruptcies will accomplish a discharge of your debt, they will do it in severely different ways. It is a good idea to consult an experienced professional who can guide you to the best fit for your family’s situation.