Chapter 7 vs. Chapter 13 Bankruptcy: Which Should You File?

The A&M TeamBankruptcy


Most people are familiar with the two main types of bankruptcy: Chapter 7 and Chapter 13. However, understanding what each entails can be far more difficult than a simple number difference. For those individuals in Oklahoma who find themselves faced with insurmountable debt and see no way out, it may be in your best interest to contact a bankruptcy lawyer.

As mentioned, the most obvious bankruptcy choices for individuals or small business owners is Chapter 7 or Chapter 13. Below you will find detailed definitions of each type, as well as information on why one may be better than the other, depending on certain factors.

Chapter 7 Bankruptcy

Also referred to as ‘liquidation’ or ‘straight’ bankruptcy, Chapter 7 allows you to obtain a court order that will discharge your obligations to pay debts. This is a good option for individuals or families who are facing a foreclosure on their home and are prepared to ‘walk-away’ from the house. This is the most common type of bankruptcy and results in your assets becoming liquidated so that creditors can be paid.

The following debts cannot be discharged under Chapter 7:

  • Alimony and child support
  • Fines associated with drunk driving charges
  • Debts incurred by fraud
  • Back taxes under 3 years old
  • Student loans
  • Recent purchases of substantial amounts

Chapter 7 bankruptcy will discharge most types of unsecured debt and takes several months to complete. In some cases, individuals will be able to hold on to most of their property, unless you have some assets with significant equity that are not exempt by law.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is also referred to as ‘wage earners’ or ‘reorganization’ bankruptcy. When filing this option, your debt will be reorganized into a manageable debt repayment schedule over the course of three to five years. Chapter 13 bankruptcy is a good option for those who can pay their debts within the designated time frame, have already filed Chapter 7 in the past six years, have debts with cosigners, and are looking for some relief from collection proceedings and credit harassers.

The following debts cannot be discharged under Chapter 13:

  • Alimony and child support
  • Fines associated with drunk driving charges
  • Student loans