The difference between Chapter 7, Chapter 11, and Chapter 13 bankruptcy comes down to what happens to your property and who the chapter is built for. Chapter 7 liquidates assets that aren’t protected by an exemption and wipes out most unsecured debt in about four months. Chapter 13 lets individuals with steady income keep their property and repay creditors through a three-to-five-year plan. Chapter 11 is a reorganization tool, mostly for businesses that want to keep operating while they restructure what they owe. All three live under Title 11 of the U.S. Code, but the eligibility rules, timelines, and outcomes diverge sharply.
Quick Comparison
- Chapter 7 is liquidation. A trustee sells non-exempt assets, distributes the proceeds, and the court discharges most remaining unsecured debt. Cases typically close in about four months. Individuals, corporations, and partnerships can all file, but only individuals get a discharge.1United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
- Chapter 13 is a court-supervised repayment plan for individuals with regular income. You keep your assets and pay disposable income to a trustee for three or five years.
- Chapter 11 is reorganization. It’s primarily for businesses, though individuals above Chapter 13’s debt ceilings can use it too. The debtor usually keeps running the operation while developing a plan to restructure debt.
Chapter 7: Liquidation
Chapter 7 is the fastest and most common form of consumer bankruptcy. A court-appointed trustee reviews your assets, sells anything that isn’t exempt, and uses the proceeds to pay creditors. Most remaining unsecured debts are then discharged, which means you’re no longer legally obligated to pay them.
In practice, most Chapter 7 cases are “no-asset” cases. The debtor’s property is either exempt under federal or state law, or worth too little for the trustee to sell. Federal exemptions protect up to $31,575 in home equity and up to $5,025 in a single vehicle, though many states set their own exemption amounts that can be significantly higher or lower.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions
Individuals have to pass a means test to qualify. The test compares your household income to the median income in your state. Earn less than the median and you generally qualify. Earn more and the test subtracts certain allowed expenses to see whether you have enough disposable income to fund a Chapter 13 plan instead.3U.S. Department of Justice. Means Testing
Corporations and partnerships can also file Chapter 7, but they don’t receive a discharge. Their assets are liquidated, the proceeds go to creditors, and the entity dissolves. There is no fresh start for a business under this chapter; it’s a wind-down.
One hard limit: if you received a Chapter 7 discharge in a prior case, you can’t get another until at least eight years have passed since the earlier filing date.4Office of the Law Revision Counsel. 11 US Code 727 – Discharge
Chapter 13: Repayment While You Keep Your Property
Chapter 13 is built for individuals with steady income who want to catch up on debts without giving up their assets. Instead of liquidation, you propose a repayment plan that lasts three to five years. If your household income is below your state’s median, the plan runs three years, though the court can extend it to five for good cause. If your income meets or exceeds the median, the plan has to run the full five years.5Office of the Law Revision Counsel. 11 USC Ch. 13 – Adjustment of Debts of an Individual With Regular Income
You send your disposable income to a Chapter 13 trustee each month, and the trustee pays creditors according to the court-approved plan. Secured debts like car loans and mortgage arrears get priority treatment. Unsecured creditors receive whatever the plan allocates, which can be a fraction of what they’re owed. Complete every plan payment and the court discharges remaining eligible unsecured debts.
Debt ceilings apply. For cases filed between April 1, 2025, and March 31, 2028, the limits are $1,580,125 in secured debt and $526,700 in unsecured debt.6United States Courts. Chapter 13 – Bankruptcy Basics Owe more than that and Chapter 13 is off the table.
Chapter 13 also offers a protection the other chapters don’t: when you file, the automatic stay extends to anyone who co-signed a consumer debt with you, shielding that co-signer from collection efforts while your case is open.7Office of the Law Revision Counsel. 11 USC 1301 – Stay of Action Against Codebtor
Chapter 11: Reorganization
Chapter 11 is primarily designed for businesses, though individuals with debts above Chapter 13’s limits can use it too. The core idea is that a struggling business is often worth more alive than sold off piece by piece. Rather than liquidate, the debtor develops a reorganization plan to restructure debts, renegotiate contracts, and return to profitability.
Debtor in Possession
Unlike Chapter 7, where a trustee takes over, a Chapter 11 debtor usually stays in control of its assets and daily operations. This “debtor in possession” arrangement reflects the idea that existing management knows the business best and can guide the turnaround. The debtor in possession takes on fiduciary duties to the bankruptcy estate and creditors, meaning it must act in their financial interest.8Office of the Law Revision Counsel. 11 USC 1101 – Definitions for This Chapter
The Reorganization Plan
The reorganization plan is the heart of every Chapter 11 case. It spells out how the debtor will restructure what it owes, whether by reducing principal, stretching out payment timelines, converting debt into equity, or some combination. Creditors whose claims are affected get to vote, and the court must then confirm the plan. Confirmation requires, among other things, that each class of creditors either accepts the plan or receives at least as much as it would in a Chapter 7 liquidation.9Office of the Law Revision Counsel. 11 US Code 1129 – Confirmation of Plan Once confirmed, the plan becomes a binding contract, and the reorganized company emerges to operate under the new terms.
Subchapter V for Small Businesses
Standard Chapter 11 is expensive and slow, which puts it out of reach for most small businesses. Subchapter V, added in 2020, offers a faster, cheaper path. To qualify, a business must owe no more than $3,024,725 in total debts, and at least half must come from business activities.10U.S. Department of Justice. Subchapter V Small Business Reorganizations
Two differences matter most. The debtor generally doesn’t have to prepare and distribute a formal disclosure statement before proposing a plan. And the “absolute priority rule,” which normally stops business owners from keeping equity unless unsecured creditors are paid in full, doesn’t apply. A small business owner can retain ownership even if unsecured creditors receive less than full payment, as long as the plan commits projected disposable income for three to five years.
Which Chapter Fits Your Situation
The decision usually comes down to four factors: your income, your assets, the type of debt you owe, and whether you need to catch up on secured obligations like a mortgage or car loan.
- Low income and few assets: Chapter 7 is the fastest exit. If you pass the means test and don’t have significant non-exempt property, liquidation clears the slate in about four months.
- Steady income and behind on a mortgage or car loan: Chapter 13 lets you cure arrears through the repayment plan while keeping the property. Chapter 7 can’t do this. If you’re behind on a secured loan, the creditor can eventually repossess after the Chapter 7 case closes.
- Income too high for Chapter 7: the means test may push you into Chapter 13. You’ll repay a portion of what you owe and keep your assets.
- Business debts, or individual debts above Chapter 13’s ceilings of $526,700 unsecured or $1,580,125 secured: Chapter 11 is the path.
- Small business under roughly $3 million in total debt: Subchapter V of Chapter 11 offers most of the restructuring power at a fraction of the cost and complexity.
Circumstances can change mid-case. A Chapter 13 debtor who loses income can convert to Chapter 7, and a Chapter 7 debtor who turns out to have too much income can convert to Chapter 13. Conversion isn’t always seamless, but it exists as a safety valve when the original filing no longer fits.
What All Three Have in Common
Regardless of chapter, the moment you file a bankruptcy petition an automatic stay takes effect. Creditors must stop all collection activity: no lawsuits, wage garnishments, foreclosures, or demand calls. The stay gives you breathing room under the protection of the bankruptcy court.11Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay It isn’t absolute. Criminal proceedings continue. Divorce and child custody cases move forward, though property division tied to the bankruptcy estate may pause. Domestic support collection from non-estate property isn’t blocked. The IRS can still audit you and issue deficiency notices, even if it can’t seize property during the case.
No chapter wipes out everything, either. Certain debts are carved out from discharge under any filing:
- Domestic support obligations such as child support and alimony.
- Most recent income taxes, taxes where no return was filed, and taxes connected to fraud.
- Student loans, dischargeable only if you prove “undue hardship” in a separate court proceeding, which remains a high bar.
- Debts obtained through fraud or false financial statements.
- Debts arising from willful injury to another person or their property.
- Government fines and penalties, including criminal restitution and traffic fines.
- Personal injury debts caused by driving while intoxicated.
These exceptions appear in 11 U.S.C. § 523, and creditors can ask the court to declare specific debts nondischargeable if they believe the debt was incurred through fraud or bad faith.12Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
Credit reporting also differs by chapter. A Chapter 7 filing stays on your credit report for ten years from the filing date. A Chapter 13 filing drops off after seven years. The shorter reporting window is one of the practical trade-offs that makes Chapter 13 more attractive to some filers despite the years of plan payments. On the tax side, debt discharged in any bankruptcy, whether Chapter 7, 13, or 11, is excluded from your income. You don’t owe federal income tax on it, unlike debt forgiven outside bankruptcy, which the IRS generally treats as taxable income.13Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments