Chapter 7 vs. Chapter 13: How to Choose

What is the actual difference between Chapter 7 and Chapter 13?

Chapter 7 is liquidation. You file, a trustee reviews what you own, nonexempt property can be sold to pay creditors, and the main purpose is to have debts discharged. Court guidance describes it as being for individuals who have financial difficulty preventing them from paying their debts and who are willing to allow nonexempt property to be used to pay creditors. Exemptions under 11 U.S.C. § 522 are what keep property out of that pool, and they are not automatic — you have to claim them on Schedule C.

Chapter 13 is a repayment plan. Under 11 U.S.C. § 1321 the debtor files a plan, and the plan submits future earnings to the trustee's supervision so the plan can be executed (11 U.S.C. § 1322(a)(1)). The court confirms it only if the requirements of 11 U.S.C. § 1325 are met. You keep property and pay over time instead of surrendering nonexempt assets up front.

What facts about your situation change the answer?

Four things do most of the work. First, income: if your debts are primarily consumer debts, the court can dismiss a Chapter 7 case under 11 U.S.C. § 707(b) if it finds that granting relief would be an abuse. Court instructions explain that above-median filers must complete the full means-test form, and that the U.S. trustee or creditors may move to dismiss based on the result.

Second, property. Everything you own is measured against the exemptions available to you under 11 U.S.C. § 522. Equity above those amounts is what a Chapter 7 trustee can reach.

Third, whether you are behind on something you want to keep. Chapter 13 plans may provide for curing defaults, including on home mortgages and vehicles.

Fourth, debt size and income regularity, which govern Chapter 13 eligibility under 11 U.S.C. § 109(e). None of these are answered by a hunch — they are answered by numbers on your schedules.

• Household income relative to the published median for your state and family size
• Equity in a home or vehicle measured against the exemptions you can claim
• Whether you are in default on a secured debt you want to keep
• Whether your income is regular and your debts fall within the § 109(e) limits
• Whether you received a discharge in an earlier case, which affects timing

What does federal law actually say about each chapter?

For Chapter 7, the key provision is 11 U.S.C. § 707(b). The court may dismiss a consumer case, or with the debtor's consent convert it to Chapter 11 or 13, if granting relief would be an abuse. The statute directs the court to presume abuse when current monthly income, reduced by the specified expense allowances and multiplied by 60, reaches the thresholds in § 707(b)(2)(A)(i). The expense figures come from IRS National and Local Standards in effect on the date of the order for relief.

For Chapter 13, 11 U.S.C. § 1325(a) lists what the court must find before confirming a plan: the plan complies with the Code, fees are paid, it was proposed in good faith, and — importantly — unsecured creditors receive at least what they would have received in a Chapter 7 liquidation (§ 1325(a)(4)). Section 1325(a)(6) requires that you will be able to make the payments. A plan that cannot be performed is not confirmable.

Do state rules change which chapter fits?

Bankruptcy is federal law, filed in federal bankruptcy court, and the two chapters work the same way everywhere. State law enters through exemptions. Section 522 lets a debtor claim the exemptions available under other federal law and under the law of the state of the debtor's domicile, and states may pass a law determining whether the federal exemption list is available as an alternative. That means the property you can protect — and therefore the equity a Chapter 7 trustee could reach — depends on where you live.

Income comparison is also state-specific: the means-test forms compare your current monthly income to the median income that applies in your state for your household size. We publish those figures on the state pages rather than restating them here, because they are adjusted periodically and a stale number is worse than no number. Local court practice also varies, including how divisions and filing locations are organized.

What does the choice look like in practice?

Consider two people with similar debt totals. One rents, has an older car with little equity, and lost a job — income is low and there is nothing a trustee would want to sell. A case like that commonly points toward Chapter 7, where the goal is a discharge and the case can move relatively quickly. One court's FAQ notes that in a typical Chapter 7 case discharge could come four to six months after filing the paperwork.

The second person is employed, four months behind on a mortgage, and has meaningful equity in the home. Chapter 7 does not provide a mechanism to catch up arrears over time, and equity beyond the exemption is reachable. A Chapter 13 plan may provide for curing that default while payments continue (11 U.S.C. § 1322(b)(5)), which is why filers in that position often look there. Note that under both chapters you generally must keep paying secured debts if you want to keep the collateral.

What documents and information do you need either way?

Both chapters start with a petition and a full set of schedules listing assets, income, liabilities, and every creditor with an address. You claim exemptions on Schedule C — property you do not list may be sold by the trustee. You must also receive a credit counseling briefing from an approved agency within 180 days before filing, and later complete a financial management course; the certification is due within 60 days of the first date set for the meeting of creditors.

Court checklists ask for the same underlying records regardless of chapter: six months of income proof, pay records from the 60 days before filing, bank statements, retirement account statements, tax information, and a list of leases and co-signers. In a Chapter 7 case you file Official Form 122A-1, and if your income is above the state median, Form 122A-2 as well. Chapter 13 additionally requires a plan.

• Petition, schedules, statement of financial affairs, and a creditor mailing matrix
• Credit counseling certificate obtained within 180 days before filing
• Six months of income documentation and 60 days of pay records
• Bank, retirement, and tax records; list of leases, co-debtors, and pending lawsuits
• Chapter 7: Form 122A-1 (and 122A-2 if above median). Chapter 13: a filed plan

What should you ask a bankruptcy lawyer?

The most useful questions are the ones that turn on facts a stranger cannot see. Bring your numbers and ask directly. Court materials are blunt about this: you should have an attorney review your decision to file and your choice of chapter, and clerk's offices are prohibited from giving legal advice.

Ask what exemptions apply to you and what equity would be at risk. Ask how the means test comes out on your actual figures, not a rough estimate. Ask whether a Chapter 13 plan you could realistically afford would satisfy § 1325 — including the requirement that unsecured creditors receive at least the Chapter 7 liquidation value. Ask about timing if you have filed before. And ask what happens if your circumstances change mid-case, since § 706(a) gives a Chapter 7 debtor a right to convert in defined circumstances and § 1307(a) lets a Chapter 13 debtor convert to Chapter 7 at any time.

• Which exemption set applies to me, and what equity is exposed under it?
• How does the means test come out on my actual income and expenses?
• What would a plan payment be, and would it satisfy § 1325(a)(4) and (a)(6)?
• Does a prior filing affect my timing for a discharge?
• What are my options if my income changes after I file?

Frequently asked questions

Is Chapter 13 always more expensive than Chapter 7?

The court fees differ modestly: Chapter 7 is a $245 filing fee plus a $78 administrative fee and a $15 trustee surcharge, while Chapter 13 is a $235 filing fee plus a $78 administrative fee. The larger difference is the plan itself, since Chapter 13 involves payments over three to five years. Court guidance also notes a Chapter 13 case is generally simpler and cheaper than a Chapter 11 case.

Can I switch from one chapter to the other after I file?

Yes, in defined circumstances. Under 11 U.S.C. § 706(a) a Chapter 7 debtor may convert to Chapter 11, 12, or 13 at any time if the case has not already been converted, and any waiver of that right is unenforceable. Under § 1307(a) a Chapter 13 debtor may convert to Chapter 7 at any time. Conversion is not automatic in every direction — the debtor must be eligible for the destination chapter.

Does being above the median income rule out Chapter 7?

No. Above-median income means you must complete the full means-test calculation on Official Form 122A-2 rather than stopping at Form 122A-1. Depending on that result, the U.S. trustee, bankruptcy administrator, or creditors may file a motion to dismiss under 11 U.S.C. § 707(b), and the court decides. It is a further step in the analysis, not an automatic exclusion.

Will either chapter stop a wage garnishment?

Filing under either chapter automatically stays most collection actions, which commonly includes wage garnishment. There are limits: the stay generally does not reach most domestic relations proceedings or most criminal proceedings. If you had a case dismissed within the past year, the stay may last only 30 days, and with two or more dismissals in the prior year it may not take effect at all absent a court order.

Are all debts wiped out in Chapter 7?

No. Court notices list categories that commonly survive a discharge, including most taxes, most student loans, domestic support and property settlement obligations, most fines and criminal restitution, and debts you failed to list in your papers. Debts arising from fraud, theft, intentional injuries, or injury caused by intoxicated driving may also remain payable. Liens can still be enforced against property even after a discharge.

How long does a prior bankruptcy affect my options?

It depends on the chapters involved. One court's eligibility chart sets out the waiting periods measured from the commencement date of the first case to the commencement date of the second: eight years after a Chapter 7 or 11 discharge before a Chapter 7 discharge, six years after a Chapter 12 or 13, four years after a 7, 11, or 12 before a Chapter 13 discharge, and two years after a Chapter 13.

Do I have to hire a lawyer to file?

You are not required to. Court disclosure materials state that if you decide to seek bankruptcy relief you can represent yourself, hire an attorney, or in some localities use a bankruptcy petition preparer who is not an attorney. Those same materials also say you should have an attorney review your decision to file and your choice of chapter. Clerk's office staff cannot give legal advice.

Sources

• 11 U.S.C. § 707 — Dismissal of a case or conversion to a case under chapter 11 or 13 · official source
• 11 U.S.C. § 1325 — Confirmation of plan · official source
• 11 U.S.C. § 522 — Exemptions · official source
• 11 U.S.C. § 109 — Who may be a debtor · official source
• 11 U.S.C. § 1321 — Filing of plan
• 11 U.S.C. § 1322 — Contents of plan · official source
• 11 U.S.C. § 706 — Conversion · official source
• 11 U.S.C. § 1307 — Conversion or dismissal · official source
• 11 U.S.C. § 527 — Disclosures · official source
• 28 U.S.C. § 1930(a)(1)(A), (f)(1)
• 28 U.S.C. § 1930(a)(1)(B)
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?
• Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals
• Bankr. E.D. La. official guidance — Chapter 7 Form Packet
• Bankr. N.D. Ill. official page — eSR Chapter 13 Checklist
• Bankr. W.D. Ky. official guidance — Eligibility Chart F944578Ec7
• Bankr. D. Md. official page — Legal Overview
• U.S. Bankr. Ct. S.D. Ala., SBRA guide (Judge Paul Bonapfel, 338 pp.) (updated June 2022)

Related

• Chapter 7
• Chapter 13
• The means test, explained
• Exemptions: what they protect
• Build your personalised roadmap
• Find your local bankruptcy court