Chapter 7 vs. Chapter 13
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 generally liquidates non-exempt assets to pay creditors and discharges most remaining unsecured debt relatively quickly, often within a few months. Chapter 13 sets up a court-approved repayment plan lasting 3 to 5 years, letting a filer keep more property, including a car, while catching up secured debt through the plan under trustee oversight. Which one is available often depends on the bankruptcy means test.
Key takeaways
- Chapter 7 generally liquidates non-exempt assets to pay creditors, then discharges most remaining unsecured debt, often within a few months of filing.
- Chapter 13 sets up a repayment plan lasting 3 to 5 years, and filers make plan payments to a trustee over that period rather than losing non-exempt property.
- Chapter 13 generally lets a filer keep more property, including a financed car, by catching up secured debt through the plan instead of surrendering it.
- The bankruptcy means test partly decides eligibility: it compares income to the state median and can require a filer to use Chapter 13 rather than Chapter 7.
- New debt during an open Chapter 13 case, including a car loan, generally needs trustee or court approval first — a requirement that doesn't apply the same way in Chapter 7.
What's the difference between Chapter 7 and Chapter 13?
Chapter 7 generally liquidates a filer's non-exempt assets to pay creditors, then discharges most remaining unsecured debt, usually within a few months of filing. Chapter 13 works differently: it sets up a court-approved repayment plan running 3 to 5 years, and the filer makes payments to a trustee over that period instead of losing non-exempt property up front.
Both chapters end with a discharge for most filers who complete the process. How they get there, and what happens to property along the way, is where they diverge.
How do the two chapters actually compare?
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Basic structure | Liquidation of non-exempt assets | Court-approved repayment plan |
| Typical length | A few months | 3 to 5 years |
| What happens to property | Non-exempt assets can be sold to pay creditors | More property is generally kept, paid for through the plan |
| A financed car | Usually reaffirm, redeem, or surrender | Usually caught up and kept through the plan |
| New debt during the case | Less commonly an issue given the short timeline | Generally needs trustee or court approval first |
| Who qualifies | Filers who pass the means test | Filers above the means test threshold, or who choose it to keep property |
This is a general comparison, not a substitute for advice from a bankruptcy attorney about a specific situation.
How do you know which one you can file?
The bankruptcy means test is the starting point. It compares a filer's average income over the 6 months before filing to their state's median income for a household of the same size. Income at or below the median generally passes, opening the door to Chapter 7. Income above it triggers a more detailed calculation, and can steer a filer into Chapter 13 instead.
Passing the means test doesn't automatically mean Chapter 7 is the better choice, though. Some filers who qualify for Chapter 7 choose Chapter 13 anyway, specifically to keep property a Chapter 7 filing might require them to give up.
What happens to a car loan in each chapter?
In Chapter 7, a filer with a financed car generally chooses among reaffirming the loan, redeeming the vehicle, or surrendering it, and each carries different tradeoffs for credit and continued liability. In Chapter 13, a car loan that's behind can typically be caught up over the plan's term rather than resolved all at once, which is a large part of why some filers prefer it even when Chapter 7 is available.
One difference matters specifically for anyone wanting to finance a new vehicle mid-case: an active Chapter 13 plan generally requires trustee approval to incur debt before new financing, since the plan already commits the filer's income to a fixed budget. That approval step doesn't apply the same way in Chapter 7, which is typically open for only a few months.
Which chapter is more common for keeping a car?
Chapter 13 is generally the more direct path for keeping a car that's already behind on payments, because the plan gives structured time to catch up the arrears. Chapter 7 can still let a filer keep a car through reaffirmation or redemption, but those routes settle the loan's status quickly rather than spreading a catch-up over years.
For the full picture of financing a vehicle before, during, and after either chapter, see getting a car loan after bankruptcy.
Common questions
What's the basic difference between Chapter 7 and Chapter 13?
Chapter 7 generally liquidates non-exempt assets to pay creditors and discharges most remaining unsecured debt fairly quickly. Chapter 13 sets up a 3-to-5-year repayment plan instead, letting a filer keep more property while catching up debt through scheduled payments.
Which chapter lets you keep your car more easily?
Chapter 13 generally makes keeping a financed car more straightforward, since falling-behind payments can be caught up through the plan over its term. In Chapter 7, keeping a financed car usually means reaffirming or redeeming the loan instead.
How do I know which chapter I qualify for?
The bankruptcy means test is the starting point — it compares your average income over the 6 months before filing to your state's median for a household your size. Income above the median can require Chapter 13 rather than Chapter 7.
How long does each chapter take?
Chapter 7 typically resolves within a few months, ending in a discharge or, less often, a dismissal. Chapter 13 runs on a scheduled repayment plan lasting 3 to 5 years, with the discharge arriving only after the plan is completed.
Can I finance a car during either chapter?
During Chapter 13, generally only with trustee or court approval first, since the plan commits your income to a fixed budget. Chapter 7 typically closes within months, so most car financing happens after the case ends rather than during it.
Sources
- Bankruptcy Basics — Administrative Office of the U.S. Courts