Open Bankruptcy Project

What Is Chapter 7 Bankruptcy?

Chapter 7 is a liquidation bankruptcy. A court-appointed trustee reviews your assets, sells any non-exempt property, and your remaining qualifying debts are discharged - typically within 3 to 4 months. In practice, most Chapter 7 cases are "no-asset" cases where the debtor keeps everything they own because all property falls within state exemption limits.

What Is Chapter 13 Bankruptcy?

Chapter 13 is a reorganization bankruptcy. Instead of liquidating assets, you propose a repayment plan lasting 3 to 5 years. Each month, you make a payment to the bankruptcy trustee, who distributes the funds to your creditors. After completing all payments, remaining qualifying debts are discharged.

When to Choose Chapter 7?

✓ You pass the means test. Your household income is below your state's median, or your disposable income calculation qualifies you. ✓ You don't have significant non-exempt assets. Most Chapter 7 cases are no-asset cases. If everything you own falls within your state's exemptions, you keep it all. ✓ You're current on your mortgage (or don't own a home). Chapter 7 doesn't help with mortgage arrears.

When to Choose Chapter 13?

✓ You're behind on your mortgage and need to save your home. Chapter 13 lets you cure mortgage arrears through the plan while keeping the house. ✓ You earn too much for Chapter 7. Chapter 13 has no income ceiling - it requires regular income but doesn't disqualify high earners. ✓ You have non-exempt assets you want to keep. Chapter 13 protects assets that would be liquidated in Chapter 7.