What is bankruptcy? What is Chapter 7 and Chapter 13?

Bankruptcy provides relief to individuals who are unable to repay their debts. The most common types of bankruptcy for Americans are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Here’s an overview of each.

Chapter 7 Bankruptcy

Most bankruptcy filings in America are Chapter 7. In a Chapter 7 bankruptcy, you file paperwork asking the court to erase your unpaid debts. Most of your debts are erased, including credit card debt, medical bills, and most civil judgments. And in about 96% of cases, you get to keep all your property to restart your new life. Chapter 7 is designed to give you a fresh start.

But there are a couple drawbacks to Chapter 7. First, a few debts cannot be erased, including most student loans, child support, and mortgages. Second, if you own real estate, an expensive car, or something else that costs a lot of money, it might be taken by the court to repay your debts. Check here to learn more about protected property; the rules vary by state.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy generally allows you to keep expensive property like a house or a luxury car. But the trade-off is your debts aren’t erased like they are in Chapter 7. Instead, you must come up with a plan to repay some of your debts over a 3 to 5 year period.

As a result, Chapter 13 is usually less desirable than Chapter 7. But if your income is relatively high (you earn more than your state’s median household income), you may be required to file a Chapter 13 case instead of a Chapter 7. You should consult a lawyer about this.

Upsolve is a 501(c)(3) legal aid nonprofit that started in 2016. Our mission is to help low-income Americans in financial distress get a fresh start through Chapter 7 bankruptcy at no cost. We do this by combining the power of technology with pro bono attorneys. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have mission-driven funders that include the U.S. government, former Google CEO Eric Schmidt, and private charities.

To learn more, read our reviews from past clients, or read our press coverage.