Understanding Bankruptcy: Chapter 7 vs. Chapter 13

Written By Aaron Sarentino
Nov 11, 2022
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Bankruptcy is a term most have heard, but only the financially unfortunate must learn to understand. However, this is not just an unlucky few. Today, most bankruptcies are filed by consumers rather than businesses. 

Over the past 20 years, there have been an average of 399,269 bankruptcy cases filed yearly in the United States. 

If you are running out of options to pay off your debts, this article will explain the differences between chapter 7 and chapter 13 bankruptcy and provide an alternative that may be better for you in the long run. 

What is Bankruptcy?

Bankruptcy is a legal process through which severely indebted individuals pay their creditors by liquidating assets or adhering to a court-ordered repayment plan. This strategy is a last-ditch effort for those who simply cannot repay their debt and have exhausted all other options. However, some forms of debt cannot be erased through bankruptcy, including: 

  • Mortgages
  • Tax debts/government fees
  • Child support/alimony

Individuals filing for bankruptcy typically use one of two methods when filing for bankruptcy: Chapter 7 or Chapter 13. 

How Does Chapter 7 Bankruptcy Work?

Chapter 7 Bankruptcy, also known as liquidation bankruptcy, is generally used for low-income debtors with few to zero assets and a relatively simple case. Upon court approval—usually several months after filing for liquidation bankruptcy—your unsecured debts (e.g., medical bills, personal loans, credit card balances) will be erased or “discharged.” You may be able to discharge secured debts, like a car loan, if you relinquish that particular property. 

Both business entities and individuals can apply for Chapter 7 Bankruptcy. However, you must earn below the median income level in your state or pass a means test

How Does Chapter 13, Bankruptcy Work?

Chapter 13 Bankruptcy, also known as reorganization bankruptcy, is typically employed by high-income individuals who don’t want to liquidate their property. Instead, the court will issue a repayment plan. 

Some unsecured debts may be erased following the payment plan, and others balances may be reduced if the underlying asset has depreciated. For example, the court may lower your car loan balance based on the car’s current value. 

Only individuals and sole proprietors can apply for Chapter 13 Bankruptcy. In addition, you cannot have more than $419,265 of unsecured debt or $1,257,850 of secured debt.

How to Avoid Filing for Bankruptcy

Filing for bankruptcy is one of the worst things you can do to your credit. A bankruptcy remains on your credit report for up to 7 or 10 years for Chapter 13 or 7, respectively. You should only take this path if you’ve exhausted all other avenues.

First, see if you qualify for debt relief and determine whether debt consolidation is viable by reaching out to a certified debt consultant. Fortunately, Americor offers a free debt analysis to help get you started.  

We are fully accredited by the Better Business Bureau (BBB), the American Fair Credit Council (AFCC), and the International Association of Professional Debt Arbitrators (IAPDA), and we have relieved over $2 billion in debt in over 30 states. Start getting your debt under control today. 

Continue reading with our article on how to avoid bankruptcy.


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Americor provides debt solutions to thousands individuals and families all over the country. We’re a next-generation debt relief company with a proprietary platform designed to help clients get out of debt quickly. Together we’ll develop a strategy for you to enjoy a debt free lifestyle. Learn more about how Americor can help relieve the burdens of debt today.

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We provide debt resolution services. Our clients who make all monthly program payments save approximately 40 – 50% of their enrolled debt (average of 43%) upon successful program completion, before program fees. Fees are based on a percentage of your enrolled debt at the time of starting the program and range from 15%-25% of your enrolled debt. Programs range from 20-48 months. Clients must save at least 25% of each debt due to an enrolled creditor before a bona fide settlement offer will be made. On average, clients receive their first settlement within 4-7 months of enrollment and approximately every 3-6 months thereafter from when the prior debt was settled. Not all Clients complete the program. Estimates are based on prior results and may not match your results. We cannot guarantee that your debts will be resolved for a specific amount or percentage or within a specific timeframe. We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting, legal advice or credit repair services. Our program is not available in all states; fees may vary by state. Some programs may be offered through The Law Firm of Higbee & Associates d/b/a Advantage Law. The use of debt resolution services will likely adversely affect your credit. You may be subject to collections or lawsuits by creditors or collectors. Your outstanding debt may increase from the accrual of fees and interest. Any amount of debt forgiven by your creditors may be subject to income tax. Clients may withdraw from the program at any time without penalty and receive all funds from their dedicated account, other than funds earned by the company or fees paid to third-party service providers, as may be applicable. Read and understand all program materials prior to enrolling. Certain types of debts are not eligible for enrollment. Some creditors are not eligible for enrollment because they do not negotiate with debt relief companies. To determine the offers you may be eligible for, Americor conducts a “soft credit pull.” This credit pull does not impact your credit score, creditworthiness, or ability to obtain credit from other sources. The soft pull is not a tradeline entry, it does not report against your score and will only take a few minutes.

Americor Funding, LLC (18200 Von Karman Ave, 6th Floor Irvine, CA 92612) is fully accredited by the Better Business Bureau (BBB), the American Fair Credit Council (AFCC), and the International Association of Professional Debt Arbitrators (IAPDA). CA Department of Financial Protection and Innovation (DFPI) License # 603K913.

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