When individuals in Oklahoma consider filing bankruptcy, the most common options are Chapter 7 and Chapter 13. While both are designed to provide debt relief under federal law, they operate very differently. Choosing between them depends on income, assets, financial goals, and long-term strategy. Understanding the distinctions is essential before filing.
Chapter 7: Liquidation Bankruptcy
Chapter 7 bankruptcy is often called “liquidation” bankruptcy. In a Chapter 7 case, a trustee is appointed to review the debtor’s assets and determine whether any non-exempt property can be sold to pay creditors.
In many Oklahoma cases, debtors are able to keep all of their property by claiming available state or federal exemptions. If assets are fully exempt, creditors may receive little or nothing, and qualifying debts are discharged within a few months.
Chapter 7 is typically faster and simpler than Chapter 13, often concluding in approximately three to four months.
Chapter 13: Reorganization Bankruptcy
Unlike Chapter 7, Chapter 13 is often referred to as a “wage earner’s plan.” Instead of liquidating assets, the debtor proposes a repayment plan lasting three to five years.
Under Chapter 13, the debtor makes monthly payments to a trustee, who distributes funds to creditors according to court approval. At the end of the plan, remaining eligible debt is discharged.
Chapter 13 is often used when someone needs time to catch up on mortgage arrears, car payments, or tax obligations.
Income Requirements and Eligibility
Chapter 7 eligibility depends on passing a “means test,” which compares household income to state median income levels. If income exceeds certain thresholds, Chapter 7 may not be available.
Chapter 13, by contrast, is available to individuals with regular income who fall within federal debt limits. It is often used by individuals who do not qualify for Chapter 7 due to income or who need to protect assets that might otherwise be sold.
Asset Protection Differences
In Chapter 7, non-exempt property may be liquidated to pay creditors. Oklahoma has generous exemption laws, but high-value non-exempt assets can complicate a Chapter 7 filing.
In Chapter 13, debtors can generally retain property, even if it is non-exempt, so long as unsecured creditors receive at least as much as they would have in a Chapter 7 liquidation.
This makes Chapter 13 useful for individuals with significant equity in property.
Treatment of Secured Debts
Chapter 7 can discharge personal liability for many debts but does not eliminate valid liens. If payments are not maintained, creditors may repossess or foreclose on secured property.
Chapter 13 provides a structured way to cure arrears over time. It can stop foreclosure proceedings and allow debtors to catch up on missed payments while remaining in the home.
For individuals facing imminent foreclosure, Chapter 13 often provides more flexibility.
Duration and Commitment
Chapter 7 is relatively short in duration. Once discharged, the case is typically complete.
Chapter 13 requires a long-term commitment to a court-approved repayment plan. Missing payments can result in dismissal of the case.
The choice between speed and structure is often a central consideration.
Impact on Credit and Future Filings
Both Chapter 7 and Chapter 13 negatively impact credit, though Chapter 7 generally remains on a credit report longer.
However, many individuals begin rebuilding credit shortly after discharge. The long-term impact often depends more on post-bankruptcy financial habits than on the chapter selected.
Which Is Better?
There is no universally “better” option. Chapter 7 may be appropriate for individuals with limited income and few non-exempt assets who seek a fast discharge of unsecured debt.
Chapter 13 may be more appropriate for those who need to protect assets, catch up on secured debt, or do not qualify for Chapter 7 due to income.
The correct chapter depends on financial goals, asset structure, and future plans.
Tulsa Bankruptcy Attorneys
In Oklahoma, Chapter 7 and Chapter 13 bankruptcy offer different paths to debt relief. Chapter 7 focuses on liquidation and rapid discharge, while Chapter 13 provides structured repayment over time. Because bankruptcy decisions affect assets, credit, and long-term financial stability, careful evaluation of your specific circumstances is essential before filing. Get a Free consultation from a Tulsa County Lawyers Group bankruptcy attorney by calling 918.379.4864. Or you can ask an online bankruptcy question by following this link.
