What is the difference between chapter 7 and chapter 13 bankruptcy?

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Bankruptcy is a legal process that allows individuals or businesses to manage their debts when they are unable to repay them. Chapter 7 and Chapter 13 are two common types of bankruptcy filings in the United States. While both chapters provide debt relief, they have significant differences in terms of eligibility criteria, repayment plans, and the impact on assets. Understanding these differences is crucial for individuals considering bankruptcy as an option.

Chapter 7 Bankruptcy

Eligibility: Chapter 7 bankruptcy, also known as liquidation bankruptcy, is available to individuals and businesses. However, not everyone can qualify for Chapter 7. To be eligible, individuals must pass the means test, which compares their income to the median income in their state. If their income is below the median, they are typically eligible for Chapter 7.

Debt Discharge: In Chapter 7 bankruptcy, a trustee is appointed to liquidate non-exempt assets to repay creditors. However, certain assets, such as necessary household items and tools of trade, are usually exempt from liquidation. Once the assets are liquidated, the remaining qualifying debts are discharged, meaning the debtor is no longer legally obligated to repay them.

Timeline: Chapter 7 bankruptcy is generally a quicker process compared to Chapter 13. It typically takes around three to six months to complete, depending on the complexity of the case.

Chapter 13 Bankruptcy

Eligibility: Chapter 13 bankruptcy, also known as reorganization bankruptcy, is only available to individuals, not businesses. It is designed for individuals with a regular income who have the ability to repay a portion of their debts over time. There is no means test for Chapter 13, but there are debt limits that individuals must meet to be eligible.

Debt Repayment Plan: In Chapter 13 bankruptcy, the debtor proposes a repayment plan to the court, outlining how they will repay their debts over a period of three to five years. The repayment plan is based on the debtor’s disposable income, which is the income left after necessary expenses are deducted. The court must approve the plan, and the debtor must make regular payments to a trustee, who then distributes the funds to creditors.

Asset Protection: Unlike Chapter 7, Chapter 13 bankruptcy allows individuals to keep their assets, including their home and car, as long as they continue to make payments according to the repayment plan. This makes Chapter 13 a popular choice for individuals who want to protect their assets from liquidation.


In summary, Chapter 7 and Chapter 13 bankruptcy are two different options for individuals or businesses seeking debt relief. Chapter 7 involves liquidating non-exempt assets to repay creditors, while Chapter 13 involves creating a repayment plan based on disposable income. Chapter 7 is generally faster but may require the liquidation of assets, while Chapter 13 allows individuals to keep their assets but requires a longer-term commitment to repay debts. Understanding the differences between these two chapters is crucial for individuals considering bankruptcy as a solution to their financial difficulties.


– United States Courts: www.uscourts.gov
– Internal Revenue Service: www.irs.gov
– Legal Information Institute: www.law.cornell.edu