Bankruptcy

Bankruptcy basics: Chapter 7 vs. 13.

Issue

What's the difference between the two most common consumer bankruptcies?

Rule

Chapter 7 liquidates non-exempt assets to pay creditors and discharges many debts. Chapter 13 sets up a repayment plan, usually over three to five years, and often lets you keep assets like a home.

Translation

A fresh start versus a structured catch-up.

Filing triggers an automatic stay, which pauses most collection efforts. Eligibility for Chapter 7 depends on a means test, and credit counseling is required before you file.

Not every debt goes away. Child support and other domestic support obligations aren't discharged, and most student loans are very hard to discharge.

Bankruptcy and divorce collide often. The automatic stay doesn't stop a divorce or support proceedings, but it can pause the division of property. If both are on the table, timing matters.