Chapter 7 and Chapter 13, the Basics

Chapter 7 may be filed by an individual or a business and is considered liquidation because some or all of the debtor’s property may be sold (liquidated) in order to pay off some of their debt. However, in Florida and other states, some property, known as exempt property, is protected and cannot be sold in order to pay money owed by the debtor. In return for filing Chapter 7 some or all of the debtor’s unsecured debts (debt with no collateral attached) will be discharged.  Secured debts on the other hand are usually not dischargeable in Chapter 7 Bankruptcy. There are several choices of what to do for money owed on a secured debt. The debtor can either allow that property to be repossessed by the creditor, to continue payments on that property by reaffirming that debt, or redeem the property by paying the creditor a sum equal to the replacement value of that property. 

Not everyone is entitled to file for Chapter 7 Bankruptcy because certain criteria must be met. The debtor’s income cannot be over a certain amount, and if it is, the debtor must pass what is known as "means test." Additionally, the court may dismiss the bankruptcy action if the debtor has filed a previous bankruptcy within a certain period of time or if the court believes the debtor is attempting to cheat their creditors. 

Chapter 13 Bankruptcy

Chapter 13 is a type of bankruptcy referred to as reorganization because the debtor keeps all of their property but their debts are reorganized so that they may make monthly payments over of a time period of usually three to five years.  Many times Chapter 13 is favored over Chapter 7 because it allows the debtor to save their homes from foreclosure by providing the option for the debtor to make up for those payments in their repayment plan. In order to file Chapter 13 Bankruptcy the debtor must have a reliable source of income that can be used to repay debts over a period of three to five years. The payments are determined by how much the debtor earns, how much is owed, and how much unsecured debt may have been paid. 


The author, Ben W. Koyl, is an attorney located in Chicago, IL. He is the principal of the Law Office of Ben W. Koyl, P.C. with offices located in the Chicago Loop, Beverly Woods / Blue Island, and Joliet, IL. The firm's website is http://www.chicagobklaw.com.