Chapter 7 and Chapter 13 are two different paths under the Bankruptcy Code, according to the U.S. Courts. The U.S. Trustee Program describes Chapter 7 as liquidation for consumers and businesses, and Chapter 13 as a wage-earner repayment plan for individuals. Each chapter has its own process, costs, uses and limits.
How each chapter works
The U.S. Courts say Chapter 7 is “liquidation” — the sale of a debtor’s nonexempt property and distribution of the proceeds to creditors. A case begins with a petition and required schedules, and an impartial trustee is appointed to administer the case and liquidate nonexempt assets. Filing the petition “automatically stays” most collection actions while the case proceeds.
The U.S. Courts say Chapter 13 “provides for adjustment of debts of an individual with regular income” and allows debts to be paid over time, usually three to five years. The debtor proposes a repayment plan with fixed payments to a Chapter 13 trustee, who distributes funds to creditors. Filing also triggers an automatic stay, and Chapter 13 contains a special stay that protects certain co-debtors on consumer debts unless the court authorizes otherwise.
Eligibility and basic limits
Under the U.S. Courts’ Chapter 7 guidance, individuals, partnerships, and corporations may qualify. For an individual with primarily consumer debts, the court may dismiss a case for abuse, and a “means test” applies if current monthly income exceeds the state median. Abuse is presumed based on a statutory formula that compares five-year income, allowable expenses, and secured payments to thresholds the U.S. Courts list.
Under the U.S. Courts’ Chapter 13 guidance, any individual with regular income, including someone self‑employed or operating an unincorporated business, may be eligible so long as, as of the filing date, unsecured debt is under $526,700 and secured debt is under $1,580,125. There are time-bar limits for repeat filings in both chapters if a prior case was dismissed within the preceding 180 days for specified reasons. For both chapters, the U.S. Courts state an individual must receive credit counseling from an approved agency within 180 days before filing, with limited exceptions.
Costs and required filings
According to the U.S. Courts, Chapter 7 requires payment of three fees: a $245 case filing fee, a $75 administrative fee, and a $15 trustee surcharge. Fees are normally paid at filing but may be paid in up to four installments with court permission, and the court may waive fees if income is less than 150% of the poverty level and the debtor cannot pay in installments. Required filings include schedules of assets and liabilities, income and expenditures, a statement of financial affairs, and a schedule of executory contracts and unexpired leases, along with tax returns for the most recent year and other documents the statute lists.
For Chapter 13, the U.S. Courts state the required fees are a $235 case filing fee plus a $75 administrative fee, payable at filing or in up to four installments with court permission. Required filings mirror Chapter 7, and the U.S. Courts note the debtor must provide the Chapter 13 trustee with the most recent tax return and those filed during the case. In Chapter 13, the plan must be filed with the petition or within 14 days unless the court grants an extension, and payments to the trustee must begin within 30 days of filing even if the plan has not yet been approved.
Treatment of property and creditors
According to the U.S. Courts, a Chapter 7 trustee gathers and sells nonexempt assets and pays creditors under the Bankruptcy Code’s priority scheme. If all assets are exempt or subject to valid liens, the trustee may file a “no asset” report, and there will be no distribution to unsecured creditors. Secured creditors may retain some rights to repossess collateral even after discharge unless the debtor reaffirms the debt under the Code’s requirements.
In Chapter 13, the U.S. Courts say the plan treats three types of claims: priority, secured, and unsecured. Priority claims must be paid in full unless a priority creditor agrees otherwise or the Code permits different treatment in specific circumstances. If the debtor keeps collateral securing a claim, the plan must provide the holder at least the value of the collateral, and certain purchase-money debts must be paid in full if incurred within stated look-back periods. Unsecured claims need not be paid in full if the plan commits all projected disposable income for the applicable commitment period and pays unsecured creditors at least what they would receive in a Chapter 7 liquidation.
Plan terms and court approval
The U.S. Courts explain that Chapter 7 does not involve filing a repayment plan. A meeting of creditors occurs between 21 and 40 days after filing, where the trustee questions the debtor under oath and the U.S. trustee reports on means-test abuse within 10 days of that meeting. The automatic stay generally bars lawsuits, wage garnishments, and collection calls while it is in effect, subject to exceptions the statute lists.
For Chapter 13, the U.S. Courts state plans generally run three years if current monthly income is below the applicable state median and five years if above, and no plan may exceed five years. No later than 45 days after the creditors’ meeting, the court holds a confirmation hearing and decides whether the plan is feasible and meets the Code’s standards. Once confirmed, the plan binds the debtor and each creditor, and failure to make payments may lead the court to dismiss or convert the case to Chapter 7.
Discharge and debts that are not discharged
In Chapter 7, the U.S. Courts say an individual’s discharge releases personal liability for most debts, with many exceptions set by statute. The court generally issues a discharge order 60 to 90 days after the first date set for the creditors’ meeting unless a timely objection or extension motion is filed. Certain debts are not discharged, including alimony and child support, certain taxes, specified education-related debts, debts for willful and malicious injury to another entity or property, debts for death or personal injury from drunk driving, and certain criminal restitution orders.
In Chapter 13, the U.S. Courts explain that a debtor is entitled to a discharge after completing all plan payments and meeting certification and course requirements the statute sets. The discharge covers debts provided for by the plan or disallowed, with exceptions including certain long-term obligations such as a home mortgage, alimony or child support, certain taxes, most government‑funded or guaranteed education loans or benefit overpayments, debts from drunk driving, and debts for restitution or criminal fines. The U.S. Courts note the Chapter 13 discharge is somewhat broader than Chapter 7 for specified categories, and a separate “hardship discharge” may be available if circumstances beyond the debtor’s control prevent completion of the plan and other statutory conditions are met.
Converting or choosing between chapters within the Code
The U.S. Courts state a Chapter 7 case may be converted to Chapter 11, 12, or 13 if the debtor is eligible, and a Chapter 13 case may be converted to Chapter 7. The U.S. Trustee Program’s overview notes Chapter 7 is used for liquidation by consumers and businesses, while Chapter 13 is used primarily by individual consumers to reorganize under a three- or five‑year plan. The U.S. Courts also point to non-bankruptcy alternatives, including out‑of‑court agreements with creditors and debt counseling services.