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What Is The Difference Between Chapter 7 And Chapter 13, And Which One Is Right For Me?

Posted by attorney Thomas Cesta

Although there are six types of bankruptcy under the US Bankruptcy Code, there are only two types that most consumers will need to consider: Chapter 7 and Chapter 13.

A Chapter 7 bankruptcy discharges debts, but no liens; and you may have to give up some assets. A Chapter 13 bankruptcy also discharges debts, but it can extinguish some liens, and reduce what you owe with some others. You can also usually keep all of your assets. However, a Chapter 13 bankruptcy also requires you to make periodic payments of your disposable income to the Trustee, but a Chapter 7 does not. Also, a Chapter 7 is essentially complete in 3 and ½ months, but a Chapter 13 takes 3 to 5 years.

The following sections give more details of what to expect in each chapter.


A Chapter 7 bankruptcy is a basic liquidation. This means that you discharge your debts [1] without needing to pay into a Plan. In order to get this discharge, you will have to surrender any assets that are not exempt. However, every state has exemption laws; and most petitioners usually have few assets that are not exempt. You will get to keep any exempt assets.

The Chapter 7 discharges personal liability, but not liens. So property which is secured will remain secured. A debtor can surrender the security, a car for example; but if the consumer wants to keep the car, the debtor will have to pay it off or continue to make payments to that creditor. [2]

Once you complete your pre-filing class [3] you will file your petition. About a week later you will get a letter from the Trustee asking you to complete a questionnaire and asking for copies of certain documents.

You will attend a 341 hearing about 4 weeks after filing. Besides completing a financial management course, this is often the last thing you need to do in your case. Your discharge can be entered 60 days after the 341 hearing, and it is usually issued within 60 to 75 days.

If the Trustee determined that you had no assets to liquidate, then the Trustee will issue a report and request to be relieved. Once this happens, your case will be closed. However, if the Trustee feels that there are assets that can be liquidated, like income tax refunds for the year in which the bankruptcy was filed or for any years prior that you have not already received and spent the refund, then the Trustee will keep the case open until the funds are received and distributed. After the distribution, the case will be closed.


A Chapter 13 will usually last for 3 to 5 years. Upon filing, you will also receive a questionnaire and document request from the Trustee; and you will attend a 341 hearing.

Your attorney and you will prepare a Plan. The Plan will specify what payments you will make, and how often. Plans can be very simple, with the same amount due each month for a number of months, or very complex, with several periods, or even every month having a different payment amount due. However, the more simple the Plan is, the easier it will be to get it confirmed.

Once the Trustee receives the Plan, the Trustee will review it and make recommendations. You will then discuss these with your attorney, and either address these in the Stipulated Order of Confirmation, or with an Amended Plan. However, once your Plan is confirmed, you will generally simply complete its terms. However, if you have unexpected difficulties, you can file to modify your Plan.

Your case will not be longer than 5 years, though it could be shorter if your plan is a 100% repayment plan. [4] The Plan requires you to commit all of your disposable income for the Plan Period. However, there are pretty reasonable expense guidelines, which includes an amount for entertainment. You can also usually keep all or most of your assets, whether or not these are exempt. [5]

Keeping your assets is important, but there are more significant advantages to a Chapter 13 Plan. One is that if you have a vehicle and you owe more than it is worth, then if you entered into the loan more than 910 days before your petition was filed, you can reduce what you owe for the vehicle down to its present value. If, for example, you owe $25,000.00 for a vehicle, but it is only worth $15,000.00, then you can pay for it through the Plan and reduce your payments.

Another significant advantage to a Chapter 13 is a lien strip for a primary residence. With your primary residence, if you have more than one mortgage, but the home is worth less than the first mortgage, you treat ALL junior mortgages as unsecured debts. This will allow you to pay for your commitment period, and at the end of that time the lien will also be discharged. [6]


Anyone who qualifies for a Chapter 7 bankruptcy can also file a Chapter 13 bankruptcy if they prefer. However, some people will only be able to file a Chapter 13. In evaluating what type of bankruptcy to file, an attorney will conduct a means test calculation. There are three parts to the test. The first is to determine whether the debtor makes less than the median income for a household of his size. This is state specific, and the guideline changes every six months. But if your income is less than or equal to the median, you can file a Chapter 7 bankruptcy. [7]

If your income is greater, then we will need to subtract your allowed expenses from your income to determine your disposable income. If this calculation leaves you in the negative, or up to no more than $117.08 per month, then you still qualify. If the calculation leaves you with more than $195.42, then you do not qualify. But if you are between these numbers you may still qualify, depending on how much general unsecured debt will be discharged. There are many factors to consider, so having a knowledgeable bankruptcy attorney review your circumstances is very important.

Even if you qualify for Chapter 7, you may still want to file a Chapter 13, perhaps because of an unsecured second mortgage, non-exempt assets, or a vehicle with an upside down loan. The most important things your attorney can do for you is to help you discover the pros and cons to filing bankruptcy, determine what chapters you can file under, and the impact each chapter will have for you.

[1] Not all debts are subject to discharge. Some debts, like child support, most taxes, and student loans automatically survive; whereas others can be declared non-dischargeable, if the creditor actively opposes the discharge, though this is a rare occurrence.

[2] There are specific processes for each of these. Consult your attorney to discuss these options.

[3] The Consumer Credit Counseling course is required to be completed before filing for both a Chapter 7 and a Chapter 13 bankruptcy, and not more than 180 days prior to filing. However, this course is available online, takes about 90 minutes, and can be completed in your own home.

[4] See my guide titled “Bankruptcy, A Financial Option" for a discussion of how a 100% payment plan is still a huge benefit for you.

[5] While this is an advantage, this is not usually the best reason to be in a Chapter 13. This is because there are usually few assets that are not exempt, and also because you will have to make plan payments for 3 to 5 years.

[6] There are specific requirements to ensure that this is handled properly. Make sure you hire an attorney with experience handling this issue.

[7] This is a discussion of the Means test only. There may be other limitations to consider, such as prior bankruptcy filings.

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