What Are the Differences Between Chapter 7 and Chapter 13 Bankruptcy?

Updated April 30, 2020

Most bankruptcies are filed under either Chapter 7 or Chapter 13 bankruptcy. If you're not familiar with how they both work, use the handy table below. It highlights some of the primary differences between Chapter 7 and Chapter 13 bankruptcy so that you can choose the right chapter for you.

Chapter 7 Bankruptcy

Chapter 7 is a liquidation bankruptcy that wipes out most of your general unsecured debts such as credit cards and medical bills without the need to pay back balances through a repayment plan. To qualify for Chapter 7 bankruptcy, you must meet income requirements. If you make too much money, you’ll have to file under Chapter 13 bankruptcy (discussed below).

When you file for Chapter 7, an order called the “automatic stay” immediately stops most creditors from pursuing collection efforts. Also, a bankruptcy trustee is appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 7 trustee’s job is to sell your nonexempt property (property that you can’t protect with a bankruptcy exemption) to pay back your creditors. If you don’t have any nonexempt assets, your creditors receive nothing.

While Chapter 7 bankruptcy works well for low-income debtors with little or no assets, it can also work for filers whose discharged debt exceeds the value of the property sold—especially if the trustee will apply the funds to nondischargeable debt, such as income tax or support arrearages.

Chapter 13 Bankruptcy

Chapter 13 is a reorganization bankruptcy designed for debtors with regular income who have enough left over each month to pay back at least a portion of their debts through a repayment plan. Even though most Chapter 13 filers make too much money to qualify for Chapter 7 bankruptcy, many debtors choose to file for Chapter 13 bankruptcy because it offers many benefits not available in Chapter 7 (such as the ability to catch up on missed mortgage payments or strip wholly unsecured junior liens from your house).

In Chapter 13 bankruptcy, you get to keep all of your property (including nonexempt assets—however you’ll have to pay creditors an amount equal to the value of your nonexempt property). In exchange, you pay back all or a portion of your debts through a repayment plan (the amount you must pay back will depend on your income, expenses, and type of debt).

Typically, Chapter 13 bankruptcy is for debtors who:

• don’t qualify for Chapter 7 but need debt relief (for instance, to lower credit card payments, stop litigation, or prevent a wage garnishment)
• have nondischargeable debts such as alimony or child support arrears that they’d like to pay off over three to five years, or
• have fallen behind on a house or car payment and want to get caught up on missed payments and keep the property.

This table highlights some of the primary differences between Chapter 7 and Chapter 13 bankruptcy:

Differences Between Chapter 7 and Chapter 13 Bankruptcy

Once you know what type of bankruptcy is right for you, Nolo has the resources to help you navigate the filing process. See How to File for Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.