How Are Chapter 13 and Chapter 7 Bankruptcies Different?

Deciding to file for bankruptcy is one of the biggest financial decisions you will ever make. It can feel like a heavy weight, but understanding your options can help you feel more in control of your future. In Connecticut, most individuals filing for bankruptcy relief will choose between two paths: Chapter 7 and Chapter 13. While both offer a way to ease the burden of debt, they work in very different ways, and the choice between them can shape the outcome of your case. Lawrence & Jurkiewicz, LLC is here to help you understand these differences and determine which option may best fit your situation.

The differences between Chapter 7 and Chapter 13 bankruptcies include:

• Repayment plans: Chapter 7 does not require a repayment plan, while Chapter 13 requires a three- to five-year plan.
• Eligibility: Chapter 7 eligibility depends on your income and passing a “means test.” Chapter 13 eligibility depends on your total debt amount and whether it falls within specific legal limits.
• Debt treatment: Chapter 7 discharges most unsecured debt quickly. Chapter 13 restructures both secured and unsecured debt over time.
• Personal assets: Chapter 7 may require the sale of non-exempt property. Chapter 13 lets you keep your assets while you make payments.

What Are the Repayment Plan Requirements for Each Type of Bankruptcy?

One of the clearest distinctions between these two chapters is whether a repayment plan is required. Chapter 7 bankruptcy does not involve an ongoing payment plan. Instead, a court-appointed trustee reviews your assets and debts, and most cases close within about ninety days of filing.

Chapter 13 bankruptcy works differently. It requires you to propose a repayment plan based on your disposable monthly income. This plan typically lasts between three and five years and must be approved by the bankruptcy court. Once your plan is confirmed, you will make regular payments to a trustee, who then distributes those funds to your creditors.

Who Is Eligible for Chapter 7 vs. Chapter 13 Bankruptcy in Connecticut?

Eligibility requirements for each chapter rest on different factors entirely.

For Chapter 7, eligibility is based on income. You must first compare your current monthly income to the Connecticut median for your household size. If your income falls under that median, you generally qualify. If it falls above the median, you will need to pass a “means test,” which considers your allowable expenses and disposable income.

For Chapter 13, eligibility depends on your total debt, rather than a maximum income cap. You must be an individual with regular income, and your combined secured and unsecured debt must fall below certain limits set by federal law. This structure makes Chapter 13 available to individuals who earn too much to qualify for Chapter 7.

How Are Secured and Unsecured Debts Treated in Each Bankruptcy Chapter?

The treatment of secured debts, such as mortgages and car loans, and unsecured debts, such as credit cards and medical bills, also sets these two chapters apart.

In Chapter 7:

• Unsecured debts are typically discharged, releasing you from personal liability.
• Secured debts require continued payments if you want to keep the property tied to them.
• Chapter 7 does not offer a way to catch up on missed mortgage or car payments.

In Chapter 13:

• Unsecured debts are repaid, in part or in full, according to your court-approved plan.
• Secured debts can be brought current over time through the plan, allowing you to catch up on missed mortgage payments and avoid foreclosure.
• Certain car loans may be restructured, depending on the loan balance and the vehicle’s value.

How Does Each Type of Bankruptcy Affect Your Personal Assets?

Your assets are treated quite differently depending on which chapter you file under. In Chapter 7, non-exempt assets may be sold by the trustee to pay creditors, though Connecticut’s exemption laws protect many essential items, including a portion of home equity and retirement accounts. Many filers are able to keep most, if not all, of their property.

In Chapter 13, you retain ownership and control of all your assets throughout the case. Rather than surrendering non-exempt property, you use your income to fund a repayment plan while keeping what you own, including a second vehicle or additional real estate that might not be protected under Chapter 7.

Determine Which Bankruptcy Option Is Right for You

Choosing between Chapter 7 and Chapter 13 depends on your income, your assets, and your long-term financial goals. Each chapter offers a distinct path toward relief, and the right choice for you will depend on the details of your unique circumstances. Lawrence & Jurkiewicz, LLC has spent years guiding clients through this decision, and we are ready to help you find clarity in your own situation. Contact us today to schedule a consultation and learn which option may offer you the fresh start you are looking for.