Chapter 7 bankruptcy sells off your non-exempt assets to pay creditors and erases most remaining debt in about four months, while Chapter 11 lets you keep your property and continue running your business while you restructure what you owe over a year or more. That is the core of Chapter 7 vs. Chapter 11 bankruptcy: liquidation versus reorganization, a fast exit versus a long rebuild, a $338 filing fee versus $1,738 before attorneys get involved.1United States Bankruptcy Court Northern District of Ohio. Filing Fees Which one fits depends on whether you qualify, whether you want to keep operating, and how much complexity and cost you can absorb.
Who Can File Each Chapter
Individuals, partnerships, and corporations can all file Chapter 7. Individuals face one extra hurdle: the means test. The court takes your average monthly income over the six months before filing and compares it to the median income for a household your size in your state.2Office of the Law Revision Counsel. 11 USC 707 – Dismissal of a Case or Conversion If you fall at or below the median, you pass. If you’re above it, the court subtracts allowed expenses and multiplies the remainder by 60; when that figure is high enough to meaningfully repay unsecured creditors, the filing is presumed abusive and you’ll likely be pushed toward Chapter 13 or Chapter 11.3United States Department of Justice. Means Testing Partnerships and corporations skip the means test entirely, but a Chapter 7 filing for a business means shutting down permanently.
Chapter 11 has no means test and no debt ceiling. Any individual or business that qualifies for Chapter 7 can file Chapter 11 instead, plus railroads, which are excluded from Chapter 7.4Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor Banks, insurance companies, and certain other regulated financial institutions can use neither and must wind down through industry-specific processes.
Individuals often reach for Chapter 11 when their debts exceed the Chapter 13 caps of $526,700 in unsecured debt and $1,580,125 in secured debt. Chapter 11 imposes no such limits, which is why it’s the reorganization tool for high-net-worth individuals and larger businesses.5United States Courts. Chapter 11 – Bankruptcy Basics
What Happens to Your Property and Your Business
The practical question is simple. Do you keep what you have, or does it get sold?
Chapter 7 Sells What Isn’t Exempt
In Chapter 7, a court-appointed trustee gathers your non-exempt property, converts it to cash, and pays creditors from the proceeds.6Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee For a business, that means the doors close and every asset goes on the block.
Individuals get some cushion through exemptions. Federal bankruptcy law shields certain property from the estate, and most states have their own exemption schemes; debtors typically pick whichever set is more generous.7Office of the Law Revision Counsel. 11 US Code 522 – Exemptions Home equity protection varies enormously by state, from as low as $15,000 to unlimited in a handful of jurisdictions. Anything above your exemption gets liquidated.
Chapter 11 Keeps the Business Running
Chapter 11 flips that model. You keep your assets, continue operating, and propose a plan to restructure what you owe. The reorganization plan sets out how each class of creditors will be treated: reduced balances, extended timelines, modified interest rates, or some combination.8Office of the Law Revision Counsel. 11 USC 1123 – Contents of Plan
You can also renegotiate or walk away from burdensome contracts and commercial leases. Rejecting a lease works as a breach; the landlord’s claim for damages becomes an unsecured claim in the bankruptcy. Until the lease is formally rejected, though, you have to keep paying rent and performing under it, and those post-filing obligations get priority over most other unsecured claims.
Creditors often prefer Chapter 11 because a business that keeps running is usually worth more than one broken up and sold in pieces. Recovery rates tend to be higher when revenue keeps coming in.
Who Runs the Case
In Chapter 7, the trustee runs everything. That person must reside or maintain an office in the judicial district where the case is filed, and once you file, they take control of the estate, investigate your finances, and handle every asset sale.9Office of the Law Revision Counsel. 11 US Code 321 – Eligibility to Serve as Trustee Your job is to cooperate. Failing to turn over requested records can get the case dismissed without any discharge.
In Chapter 11, you typically stay in charge. The Code calls this being a “debtor in possession,” and it means existing management runs the business and controls estate property without a trustee stepping in.10Office of the Law Revision Counsel. 11 USC 1101 – Definitions for This Chapter You take on fiduciary duties to creditors during this period, so every significant business decision has to consider their interests. A court will only appoint a Chapter 11 trustee if someone shows cause, such as fraud, dishonesty, incompetence, or gross mismanagement, or if appointing one would simply be in the best interests of creditors and equity holders.11Office of the Law Revision Counsel. 11 US Code 1104 – Appointment of Trustee or Examiner That’s uncommon. Most Chapter 11 cases run with the debtor at the helm.
Cost and Timeline
The financial and time gap between these chapters is substantial.
Chapter 7 costs $338 to file, and filers who can’t afford that can request installments or apply for a fee waiver if their income falls below 150% of the poverty line. Attorney fees usually run $1,000 to $3,000 because the cases are relatively straightforward. Chapter 11 costs $1,738 to file, and legal fees commonly reach the tens of thousands for a business case; large corporate reorganizations run into the millions. That cost gap alone drives many small businesses toward Chapter 7 or Subchapter V rather than a standard Chapter 11.
Chapter 7 moves quickly. The 341 meeting of creditors is typically scheduled within 20 to 40 days of filing, and for most people the meeting itself lasts under 10 minutes.12United States Bankruptcy Court. What Is a 341(a) Meeting of Creditors A discharge usually issues about four months after filing.13United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
Chapter 11 is a much longer road. You have to prepare a disclosure statement with enough financial detail for creditors to evaluate the plan, get it approved by the court, solicit creditor votes, then have the court hold a confirmation hearing to check every legal requirement.5United States Courts. Chapter 11 – Bankruptcy Basics Straightforward cases commonly take 12 to 18 months from filing to confirmation, and complex corporate reorganizations can stretch several years.
Subchapter V for Small Businesses
Standard Chapter 11 is expensive enough that it has historically been out of reach for many small businesses. Subchapter V, created by the Small Business Reorganization Act, is the faster and cheaper alternative. As of 2026, a business qualifies if total debts (excluding debts owed to insiders or affiliates) don’t exceed $3,424,000, and at least half of that debt comes from business activities.
Several features shrink the cost and timeline compared with standard Chapter 11:
- No creditors’ committee is appointed unless the court specifically orders one, which cuts a significant source of legal fees.
- No disclosure statement is required, removing an expensive and slow step.
- The debtor must file a reorganization plan within 90 days of the petition.
- The court can confirm a plan without creditor consent as long as the debtor commits all projected disposable income for three to five years to paying creditors.
- The absolute priority rule doesn’t apply, so owners can keep their equity even if unsecured creditors aren’t paid in full.
A Subchapter V trustee is appointed in every case, but the role is closer to facilitator than liquidator: monitoring progress, helping negotiate, keeping the case on track. The debtor remains in possession and keeps running the business. Subchapter V cases often reach confirmation within six to nine months.
Debts That Survive Either Chapter
Neither chapter wipes out everything. Some categories of debt survive discharge no matter which one you file:14Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
- Domestic support obligations, including child support and alimony.
- Most student loans, unless you can prove that repayment would cause undue hardship, a notoriously difficult standard.
- Recent income taxes, and any tax debt tied to a fraudulent return or attempted evasion.
- Debts obtained through fraud, false pretenses, or misrepresentation.
- Debts arising from death or personal injury caused by driving while intoxicated.
- Fines and penalties owed to a government entity, other than compensation for actual financial losses.
- Debts from willful and malicious injury to a person or property.
There’s a practical trap here: debts you accidentally leave off your schedules can survive too. If a creditor never receives notice and misses the deadline to file a claim, that debt may be treated as nondischargeable. Get every creditor onto the list.
Switching From One Chapter to the Other
Filing one chapter doesn’t lock you in. A Chapter 7 debtor has an absolute right to convert to Chapter 11 at any time, as long as the case wasn’t already converted from another chapter, and any waiver of that right is unenforceable.15Office of the Law Revision Counsel. 11 USC 706 – Conversion That option matters if reorganization starts looking better than liquidation, or if the means test knocks you out of Chapter 7.
Going the other direction has more strings. A Chapter 11 debtor can convert to Chapter 7 if still in possession of the estate, the case didn’t start as an involuntary petition, and it wasn’t converted from another chapter. Creditors or the U.S. Trustee can also ask the court to convert for cause: continuing losses with no reasonable likelihood of recovery, gross mismanagement, failure to file a plan on time, or failure to pay post-filing taxes.16Office of the Law Revision Counsel. 11 USC 1112 – Conversion or Dismissal When a Chapter 11 reorganization is clearly failing, conversion to Chapter 7 is how the case gets wound up.