3 Key Advantages of Chapter 13 vs. Liquidation

Law Blog

When you speak with a Chapter 13 bankruptcy lawyer about petitioning the court, the goal is to get your current finances under control. This is distinct from the Chapter 7 process, sometimes called liquidation, where the goal is to sell all of your disposable assets to settle up with your creditors and start fresh. Each process is meant for a distinct type of debtor, and it's important to understand why Chapter 13 might have some advantages for particular people.

Holding onto Assets

The biggest advantage of filing for Chapter 13 is there's a good chance you'll be able to hold onto to most, if not all, of your assets. Rather than wiping assets out to convert them to cash to pay creditors, Chapter 13 asks creditors to take what's colloquially referred to as a "hair cut." A bit comes off the top of the debt pile, but there's a promise to pay the remaining amount off within three to five years.

One notable potential advantage is that secured debts, such as mortgages and car loans, may sometimes be renegotiated under Chapter 13. If you're facing foreclosure or repossession, this can make the restructuring process especially desirable.


Chapter 13 is about buying time. To be clear, the court is under no obligation to let you have this time. You and your Chapter 13 bankruptcy lawyer will have to present evidence showing you have the resources to make good on your proposed restructured payment plan. This includes demonstrating that you have enough income and can reasonably assume you'll continue to.

For many folks, though, consolidating their debts into a single court-ordered repayment plan at a lower cost can be a difference-maker. Rather than facing financial disaster within potentially weeks, you'll have a few years to pay down your creditors and get your financial life back on track.


If you go straight to liquidation, your remaining options are significantly reduced. There is a somewhat creative process where you can liquidate unsecured debts under Chapter 7 and restructure secured ones under Chapter 13, but that's about it. Otherwise, it's liquidate and start over.

When the court grants your petition for restructuring, on the other hand, you will still have the option to pursue liquidation if the plan fails. Notably, the court expects a good-faith effort to pay according to your Chapter 13 plan. If unexpected events, such as a major economic recession, occur, though, you'll still have the option. 

For more information, reach out to a Chapter 13 bankruptcy lawyer


17 June 2020

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