Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 7 and Chapter 13 are the two most common types of personal bankruptcy. Chapter 7 is a liquidation: a trustee sells property that is not exempt and pays creditors from the proceeds. Chapter 13 is a repayment plan for individuals with regular income, who usually keep their property and pay debts over three to five years. Eligibility, cost, timing, and which debts are discharged differ between the two.
What the law says
- Chapter 7 provides for liquidation: the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors. The debtor may keep certain "exempt" property, and whether property is exempt is often a question of state law. U.S. Courts, Chapter 7 - Bankruptcy Basics
- Chapter 13 provides for adjustment of debts of an individual with regular income; it allows a debtor to keep property and pay debts over time, usually three to five years. U.S. Courts, Chapter 13 - Bankruptcy Basics
- In Chapter 7, the debtor may be an individual, a partnership, or a corporation or other business entity, but a discharge is only available to individual debtors, not to partnerships or corporations. U.S. Courts, Chapter 7 - Bankruptcy Basics
- Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13, subject to debt limits: U.S. Courts lists unsecured debts less than $526,700 and secured debts less than $1,580,125, measured as of the date of filing. U.S. Courts, Chapter 13 - Bankruptcy Basics
- For Chapter 7, individuals whose income is above their state's median face a "means test"; if income is high enough, abuse is presumed, and the debtor can rebut the presumption only by showing special circumstances. U.S. Courts, Chapter 7 - Bankruptcy Basics
- A Chapter 13 plan lasts three years if the debtor's current monthly income is below the state median and generally must be five years if it is above; no plan may run longer than five years. Payments to the trustee must begin within 30 days after filing. U.S. Courts, Chapter 13 - Bankruptcy Basics
- In Chapter 13, the discharge comes after the debtor completes all plan payments, and it is somewhat broader than a Chapter 7 discharge. U.S. Courts, Chapter 13 - Bankruptcy Basics
- In Chapter 7, the court generally issues the discharge 60 to 90 days after the date first set for the meeting of creditors, unless a party in interest files a complaint objecting to it. U.S. Courts, Chapter 7 - Bankruptcy Basics
- Court fees for Chapter 7 are a $245 case filing fee (28 U.S.C. § 1930) plus, under the Bankruptcy Court Miscellaneous Fee Schedule (effective December 1, 2023), a $78 administrative fee and a $15 trustee surcharge. U.S. Courts, Bankruptcy Court Miscellaneous Fee Schedule
- Court fees for Chapter 13 are a $235 case filing fee plus, under the same Miscellaneous Fee Schedule, a $78 administrative fee. The statutory filing fees are set in 28 U.S.C. § 1930. U.S. Courts, Bankruptcy Court Miscellaneous Fee Schedule
FAQ
Which chapter lets me keep my house?
U.S. Courts says Chapter 13 offers individuals an opportunity to save their homes from foreclosure. In Chapter 7, the debtor keeps exempt property, and whether property is exempt is often a question of state law.
Is every debt wiped out?
No. Under both chapters some debts are not discharged, such as alimony and child support, certain taxes, and certain student loans. Chapter 13 also leaves certain long-term obligations, such as a home mortgage, in place.
Can a business file Chapter 7?
A partnership or corporation can file Chapter 7, but only individual debtors receive a Chapter 7 discharge.
What happens to my property in a Chapter 7 case?
The trustee gathers and sells nonexempt assets. If all of the debtor's assets are exempt or subject to valid liens, the trustee normally files a "no asset" report and there is no distribution to unsecured creditors.
Are there alternatives to filing?
U.S. Courts notes that out-of-court agreements with creditors or debt counseling services may provide an alternative to bankruptcy.
Related
- Can You File Bankruptcy on Student Loans?
- Do I Need a Lawyer for Bankruptcy?
- How Long Does Bankruptcy Stay on Your Credit Report?
- How Much Does a Bankruptcy Lawyer Cost?
- How Much Does It Cost to File Bankruptcy?
- How Often Can You File Bankruptcy?
- What Happens When You File for Bankruptcy?
- What Is Chapter 13 Bankruptcy?
- What Is Chapter 7 Bankruptcy?
- Bankruptcy by state
General legal information, not legal advice. Laws change and local rules can differ; check the linked official source or talk to a lawyer about your situation.