What is the main difference between Chapter 7 and Chapter 13?
Chapter 7 is a liquidation that eliminates most unsecured debts in 3-4 months. Chapter 13 is a reorganization that restructures debts into affordable monthly payments over 3-5 years. Chapter 7 may require surrendering non-exempt assets, while Chapter 13 lets you keep all property.
Which chapter of bankruptcy is better?
Neither is universally better. Chapter 7 is better if you have low income, few assets, and mostly unsecured debt. Chapter 13 is better if you have regular income, want to keep non-exempt property, need to catch up on mortgage or car payments, or do not qualify for Chapter 7.
Do I get to choose which chapter to file?
You can choose Chapter 13 regardless of income. However, Chapter 7 requires passing the means test -- if your income exceeds your state's median, you must demonstrate that your disposable income is insufficient to fund a Chapter 13 plan.
How much does Chapter 7 cost compared to Chapter 13?
Chapter 7 filing fees are $338 and attorney fees typically range from $1,000-$2,000. Chapter 13 filing fees are $313 and attorney fees range from $2,500-$5,000 (often paid through the plan). Chapter 13 also requires 3-5 years of monthly plan payments.
How long does each chapter take?
Chapter 7 typically takes 3-6 months from filing to discharge. Chapter 13 takes 3-5 years because you must complete the repayment plan before receiving a discharge. However, Chapter 13 provides protection and debt restructuring throughout the entire plan period.
Can I keep my house in Chapter 7?
Yes, if your home equity is within your state's homestead exemption and you continue making mortgage payments. If your equity exceeds the exemption, the trustee could sell the home. Chapter 13 is often better for homeowners who are behind on payments.
Can I keep my car in Chapter 13?
Yes. Chapter 13 allows you to keep your car and catch up on missed payments through your plan. If you owe more than the car is worth and owned it for more than 910 days, you may be able to 'cram down' the loan to the car's current value.
What debts does Chapter 7 not eliminate?
Chapter 7 does not eliminate student loans (absent undue hardship), most tax debts, child support, alimony, debts from fraud, DUI-related damages, government fines, and debts not listed on your petition. These nondischargeable debts are defined under Section 523(a).
What is the income limit for Chapter 7?
If your household income is below your state's median income for your family size, you automatically pass the means test. If above the median, you may still qualify if your allowable expenses leave insufficient disposable income. There is no hard income cutoff.
Can I convert from Chapter 7 to Chapter 13 or vice versa?
Yes. You have the right to convert from Chapter 7 to Chapter 13 once. Conversion from Chapter 13 to Chapter 7 requires court approval and the means test must be satisfied. Conversion can be strategic if circumstances change during your case.
Which chapter is better for credit recovery?
Chapter 7 typically allows faster credit recovery because it is completed in 3-6 months and eliminates debts immediately. Chapter 13 stays on your credit report for 7 years (versus 10 for Chapter 7), but the 3-5 year payment period means recovery takes longer.
Can I file Chapter 13 if I am self-employed?
Yes. Self-employed individuals can file Chapter 13 as long as their debts are below the limits and they have regular income. Chapter 13 can be advantageous for business owners because it allows you to continue operating while restructuring debt.
What happens to my tax refund in Chapter 7 vs Chapter 13?
In Chapter 7, the trustee may claim your tax refund as a non-exempt asset. In Chapter 13, tax refunds may need to be turned over to the trustee as part of your plan, depending on local practice and your plan terms.
Can I switch from Chapter 13 to Chapter 7 if I lose my job?
Yes. Loss of income is a common reason to convert from Chapter 13 to Chapter 7. You must qualify under the means test and cannot have converted from Chapter 7 to Chapter 13 previously in the same case. Consult your attorney about timing.
Which chapter stops foreclosure better?
Chapter 13 is superior for stopping foreclosure because it allows you to cure mortgage arrears over 3-5 years while keeping your home. Chapter 7 only temporarily delays foreclosure through the automatic stay and does not provide a mechanism to catch up on missed payments.