Chapter 7
 
A Chapter 7 Bankruptcy does not involve any court protected repayment plan and will legally eliminate your unsecured dischargeable debt such as credit cards, medical bills, most judgments and garnishments, repossession debt, eviction or broken lease debt, some taxes, and past due utilities. The debt is eliminated through a legal discharge. A Chapter 7 discharge is not an absolute right, but most individuals experiencing financial difficulty will qualify.
 
In Chapter 7 you will be required to continue making payments on your secured debt, such as house and car payments, in order to keep the collateral securing the loan (the house or car). Your agreement to continue making these payments is called a reaffirmation agreement. In Chapter 7, you do not have a right to modify your car payments. (Chapter 13 does provide this right through a debt adjustment. For those with high car payments a Chapter 13 may be more helpful.)
 
Chapter 13
 
Chapter 13 is a court protected repayment plan where individuals are allowed to modify loan agreements and even eliminate significant portions of their unsecured debt. Many people mistakenly believe that Chapter 13 requires that all creditors be paid in full with interest. Our clients are relieved to learn that Chapter 13 allows for the repayment of only the percentage of credit cards and other unsecured debt that an individual or family can reasonably afford. Additionally, Chapter 13 allows for the modification of personal property loans, such as cars. As a result, an individual can actually end up paying less per month in Chapter 13 than in Chapter 7 because of the ability to modify certain secured loans in Chapter 13. For instance, the interest rate on vehicles can often be lowered and the amount paid back through the payment plan is based on the current Blue Book value of the car or the amount owed on the loan, whichever is lower. If you owe more than your car is worth ("upside-down"), Chapter 13 can be helpful.