Bankruptcy Chapter 7 vs 13: Key Differences, Eligibility & What’s Right for You

When debt obligations exceed the ability to repay, bankruptcy may provide a lawful resolution. The choice between bankruptcy Chapter 7 vs Chapter 13 depends on income calculations, asset ownership, debt structure, and repayment requirements under federal law. 

For individuals filing in Texas or Florida, state exemption statutes further affect how property is treated during the case.

How Chapter 7 and Chapter 13 Bankruptcy Operate

Chapter 7 and Chapter 13 are governed by separate provisions of the U.S. Bankruptcy Code. Each chapter follows a different legal process from filing through resolution.

Chapter 7 Bankruptcy

Chapter 7 resolves debt through liquidation and discharge. A court-appointed trustee reviews income, assets, and exemptions and may sell non-exempt property. Eligible unsecured debts are typically discharged within four to six months.

Chapter 13 Bankruptcy

Chapter 13 resolves debt through a court-approved repayment plan based on disposable income. Payments are made over three to five years, after which remaining eligible debts may be discharged.

Bankruptcy Chapter 7 vs Chapter 13 at a Glance

The table below outlines how Chapter 7 and Chapter 13 differ in structure, timing, and treatment of debts and assets. Outcomes depend on individual financial details and applicable exemption laws.

Income, Eligibility, and Case Duration

Eligibility for Chapter 7 or Chapter 13 is determined by income calculations set by federal law. These calculations also affect whether repayment obligations apply and how long court supervision lasts.

Key factors include:

• Household income level: Compared against state median income for Chapter 7
• Disposable income: Determines required payments in Chapter 13
• Statutory repayment period: Three or five years depending on income level

Treatment of Property and Assets

Property treatment depends on exemption limits and equity levels. Each chapter applies separate rules that determine whether assets are exposed to liquidation or preserved through repayment.

Property outcomes depend on:

• Type of asset owned: Real estate, vehicles, personal property
• Available exemptions: Federal or state-specific protections
• Equity value: Amount exceeding exemption thresholds

How Different Types of Debt Are Addressed

Bankruptcy law assigns debts to specific categories governed by different statutory rules. Classification determines whether obligations are discharged, repaid, or excluded from relief.

Debt categories include:

• Unsecured debt: Credit cards, medical bills, personal loans
• Secured debt: Mortgages and auto loans tied to collateral
• Non-dischargeable debt: Support obligations, most student loans, certain taxes

Home and Vehicle Considerations

When loans are tied to real estate or vehicles, repayment status and equity levels become central to chapter selection. Courts evaluate whether payments can be maintained under bankruptcy supervision.

Evaluation typically focuses on:

• Current loan status: Whether payments are delinquent
• Equity in the property: Protected versus non-exempt value
• Ability to maintain payments: Ongoing affordability

Texas and Florida Bankruptcy Considerations

State exemption statutes determine which assets may be protected during bankruptcy proceedings. These statutes directly affect liquidation risk and repayment requirements.

Notable distinctions include:

• Texas exemptions: Broad homestead and personal property protections
• Florida exemptions: Strong homestead protection with narrower personal property limits

Choosing Between Bankruptcy Chapter 7 vs 13

The choice between Chapter 7 and Chapter 13 is dictated by statutory eligibility and financial structure rather than personal preference.

Common decision drivers:

• Income level relative to the means test
• Amount and type of secured debt
• Need to retain non-exempt assets

Errors That Can Affect Bankruptcy Outcomes

Certain actions before or during a bankruptcy case can affect eligibility, case administration, or discharge. Common issues involve asset transfers, recent debt activity, and the accuracy of financial disclosures.

Common errors include:

• Asset transfers before filing: May trigger trustee review or clawback actions
• Large credit purchases shortly before bankruptcy can result in objections or non-dischargeable debt
• Incomplete or inaccurate disclosures may delay the case or lead to denial of discharge
• Failure to list all creditors: Can leave debts unresolved after case closure

Frequently Asked Questions

How long does bankruptcy remain on a credit report?
Chapter 7 may appear for up to ten years. Chapter 13 may appear for up to seven years.

Can a Chapter 7 case be converted to Chapter 13?
Conversion may be permitted if statutory requirements are met and the court approves the request.

Does filing stop lawsuits and wage garnishment?
The automatic stay generally halts most collection actions upon filing.

Is court approval required for repayment plans?
Yes. Chapter 13 repayment plans must be confirmed by the bankruptcy court.

Bankruptcy Case Evaluation at United Law

United Law evaluates bankruptcy matters by examining financial eligibility and statutory requirements under federal and state law. The review focuses on factors that affect chapter selection, asset treatment, and repayment obligations.

Case evaluation typically includes:

• Income calculations: – Means test thresholds and disposable income
• Asset exposure: Equity levels and exemption coverage
• Debt classification: Secured, unsecured, and non-dischargeable obligations
• State exemption statutes: jurisdiction-specific property protections
• Collection activity: – Lawsuits, garnishments, or enforcement actions

Moving Forward After Financial Distress

Choosing between bankruptcy Chapter 7 Vs Chapter 13 affects debt resolution, property treatment, and court oversight. For individuals considering bankruptcy, United Law offers a free case evaluation based on income, assets, debts, and applicable state exemption rules.