If you’re overwhelmed by debt and looking for a fresh financial start, bankruptcy may be an option worth considering, but one of the first questions people ask is: What’s the difference between Chapter 7 and Chapter 13 bankruptcy? Each type offers different benefits and is suited for different financial situations. Understanding how they work can help you decide which path might be right for you.
Chapter 7 Bankruptcy: A Fresh Start Through Liquidation
Chapter 7 bankruptcy is often called “straight bankruptcy” or “liquidation bankruptcy.” It’s designed for people who don’t have the income to repay their debts.
When you file under Chapter 7, most of your unsecured debts—like credit cards, medical bills, and personal loans—are wiped out (discharged). In return, you may have to give up some of your property so that it can repay creditors. However, Oklahoma law allows you to keep (“exempt”) certain property, such as your home, car, and household goods, up to specific limits.
To qualify for Chapter 7, you must pass a means test, which compares your income to the state median and your ability to pay back your debts. Most people who file for Chapter 7 in Oklahoma keep all of their property due to generous state exemptions.
Chapter 13 Bankruptcy: Repayment Through a Plan
Chapter 13 bankruptcy is known as a reorganization. Instead of wiping out your debts right away, you create a 3- to 5-year repayment plan to pay back all or part of what you owe. It’s a better option for people who:
- Have a steady income
- Are behind on mortgage or car payments
- Want to keep property that Chapter 7 would take
- Don’t qualify for Chapter 7 under the means test
Under Chapter 13, you make monthly payments to a court-appointed trustee, who distributes funds to your creditors. At the end of the repayment plan, any remaining unsecured debt may be discharged.
This option is also helpful if you’re trying to stop a foreclosure or repossession, as it gives you a chance to catch up on past-due payments while protecting your assets.
Which Option Is Right for You?
After looking at the details of your situation, you may still be unsure which to pick. You should choose Chapter 7 if you have low income, few assets, and need fast relief from unsecured debt. However, choose Chapter 13 if you have a regular income, want to stop a foreclosure, or need time to catch up on secured debts like a mortgage or car loan.
Talk to an Oklahoma City Bankruptcy Attorney
Bankruptcy is a powerful tool—but it’s not one-size-fits-all. We help people evaluate their financial situation and choose the best strategy for long-term relief. Whether you’re considering Chapter 7 or Chapter 13, our bankruptcy team at OKC Attorneys can help. Call us today at 405-367-8710 or ask a question online.
