Chapter 7 vs. Chapter 11 bankruptcy comes down to a simple trade-off: Chapter 7 erases most debts by selling off your non-exempt property in about four to six months, while Chapter 11 lets you keep your assets and keep operating by restructuring what you owe under a court-approved plan that usually takes a year or more and costs far more to run. Chapter 7 fits individuals and small businesses that want a clean slate. Chapter 11 fits businesses (and some high-debt individuals) that want to survive as going concerns.
The Core Difference at a Glance
Both chapters live under Title 11 of the United States Code, but they solve different problems.
- Chapter 7 is liquidation. A court-appointed trustee sells your non-exempt property and pays creditors from the proceeds. Whatever unsecured debt remains gets discharged.
- Chapter 11 is reorganization. You stay in control of your assets, keep the business running, and propose a plan that pays creditors over three to five years or longer.
The rest of the differences (eligibility, cost, timeline, what happens to property) flow from that basic split.
Who Can File Each One
The starting rules for any bankruptcy filer are in 11 U.S.C. ยง 109.1Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
Chapter 7 has a means test. If your household income tops the median for your state, the court runs a calculation to see whether you have enough disposable income to repay a meaningful share of what you owe. Fail the test and you get pushed toward another chapter, usually Chapter 13.2Office of the Law Revision Counsel. 11 USC 707 – Dismissal of a Case or Conversion to a Case Under Chapter 11 or 13 Corporations and LLCs are not subject to the means test and can file Chapter 7 to liquidate entirely, but business entities do not receive a discharge of remaining debts.
There’s also a repeat-filing bar: you cannot receive a Chapter 7 discharge if you already got one within the previous eight years, measured from the earlier filing date.3Office of the Law Revision Counsel. 11 USC 727 – Discharge Chapter 11 remains available even if you’re inside that window.
Chapter 11 has no income ceiling. Any business can file. Individuals turn to Chapter 11 when their debts exceed the Chapter 13 caps, which as of April 2025 sit at $1,580,125 in secured debt and $526,700 in unsecured debt, applied as separate thresholds rather than a combined total. Exceed either one and Chapter 11 is your remaining reorganization option.
What Happens to Your Property
This is the sharpest split between the two chapters.
In Chapter 7, a trustee takes control of your non-exempt assets, identifies anything of value, sells it, and distributes the proceeds to creditors.4Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee Federal and state exemptions protect basic property: a modest amount of home equity, a vehicle up to a certain value, clothing, household goods. Anything outside those exemptions is fair game. In practice, most consumer Chapter 7 cases are “no-asset” cases because the debtor owns nothing valuable enough to sell after exemptions. But a vacation home, an expensive car, or significant investments will draw the trustee’s attention.
In Chapter 11, you stay in control. The legal term is “debtor in possession,” meaning you keep running the business, making decisions, and managing assets without handing anything to a trustee.5Office of the Law Revision Counsel. 11 USC 1107 – Rights, Powers, and Duties of Debtor in Possession The trade-off is heavy court oversight. Monthly operating reports detail every dollar in and out. Major transactions (selling property, taking on new debt) need court approval. Creditors participate actively and can object if they think the business is being mismanaged.
How Debts Get Wiped Out or Repaid
Chapter 7 ends in a discharge. After the trustee liquidates non-exempt property and pays what can be paid, the court issues an order that permanently eliminates your personal liability for most remaining unsecured debts, including credit card balances, medical bills, and personal loans.3Office of the Law Revision Counsel. 11 USC 727 – Discharge After that order, creditors are legally barred from collecting on discharged debts.
Chapter 11 ends (or begins to end) with a confirmed reorganization plan. You propose a document that groups creditors into classes and spells out how much each class receives and on what schedule.6Office of the Law Revision Counsel. 11 USC 1123 – Contents of Plan Creditors vote. If enough classes accept, the court holds a confirmation hearing to verify the plan is feasible and treats creditors fairly. Even when some classes vote no, the court can force the plan through under certain conditions, a mechanism known as cramdown. The debtor then makes payments under the confirmed plan, often for three to five years or longer.
Debts Neither Chapter Erases
Neither chapter wipes out every kind of debt. Federal law carves out categories that survive bankruptcy regardless of which chapter you file.7Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge The main ones:
- Domestic support obligations. Child support and alimony survive completely.
- Most tax debts. Recent income taxes, taxes where no return was filed, and taxes involving fraud all survive. Older tax debts that meet narrow age and filing requirements can sometimes be discharged.
- Student loans. Federal and private student loans are nondischargeable unless you prove “undue hardship,” a standard courts read strictly. A 2022 DOJ guidance streamlined the process for federal loans, but the underlying legal bar remains high.
- Debts from fraud or intentional harm. Charges run up through misrepresentation, embezzled funds, or deliberate injury follow you out.
- Certain government fines and penalties. Criminal restitution and most government-imposed fines are nondischargeable.
In Chapter 11, these debts must be accounted for in the plan and paid according to their priority. They cannot be reduced through cramdown. Filers often expect a total clean slate and are caught off guard by this list.
What Each One Costs
The cost gap is enormous, and it runs well past the filing fee.
A Chapter 7 petition costs $338 to file, covering the court’s base fee, administrative fee, and trustee surcharge.8United States Courts. Bankruptcy Court Miscellaneous Fee Schedule Attorney fees for a straightforward consumer case generally run $1,000 to $2,500, often as a flat rate. Total out-of-pocket for most individual filers lands between $1,500 and $3,000. Courts allow installment payment of the filing fee if you cannot afford it upfront, and there are usually no ongoing costs once the case opens.
Chapter 11 starts at $1,738 for the filing fee alone. The real expense is ongoing. Every quarter the case stays open, the debtor owes fees to the U.S. Trustee based on total disbursements. Those quarterly fees range from $325 (disbursements under $15,000) to $30,000 (disbursements over $30 million).9Office of the Law Revision Counsel. 28 USC 1930 – Bankruptcy Fees Attorney fees are billed hourly and paid from the estate, often reaching tens of thousands of dollars per month in complex reorganizations. Accountants, financial advisors, and other professionals add more. A mid-size Chapter 11 case can easily generate six figures in professional fees before the plan is even confirmed. That cost structure is the single biggest reason small businesses look at Subchapter V instead.
How Long Each Case Takes
Chapter 7 is built for speed. The meeting of creditors is typically scheduled 21 to 60 days after filing. In most consumer cases, the court issues a discharge order roughly 60 days after that meeting, putting the whole timeline at four to six months. The trustee may keep administering assets afterward in cases where property was sold, but for the debtor the case is effectively over.
Chapter 11 has no built-in speed. Negotiation, voting, and confirmation of a plan take months at a minimum and frequently run one to three years. Courts grant extensions on the debtor’s exclusive period to propose a plan. Creditor committees push back on terms. Contested confirmation hearings drag. After confirmation, the case stays open while the debtor makes payments under the plan, which can add several more years. A Chapter 11 that spans five or more years from filing to final decree is not unusual for larger companies.
Subchapter V: The Middle Path for Small Businesses
Small businesses that qualify can file under Subchapter V of Chapter 11, a streamlined track created by the Small Business Reorganization Act of 2019. The current debt ceiling for Subchapter V eligibility is $3,024,725.10U.S. Department of Justice. Subchapter V Small Business Reorganizations
Subchapter V strips out much of what makes traditional Chapter 11 impractical for smaller companies. No creditors’ committee is automatically appointed, which eliminates a major source of fees and delays.11United States Courts. Chapter 11 – Bankruptcy Basics The absolute priority rule, which in traditional Chapter 11 blocks existing owners from keeping equity unless all creditors are paid in full, does not apply. A small business owner can retain ownership while paying creditors from projected disposable income over three to five years. A court-appointed trustee helps run the process, and tighter confirmation deadlines keep costs down. Quarterly U.S. Trustee fees do not apply in Subchapter V cases.9Office of the Law Revision Counsel. 28 USC 1930 – Bankruptcy Fees
If your business has manageable debt and a realistic path to profitability, Subchapter V is almost always a better choice than traditional Chapter 11.
Switching Chapters After You File
Filing under one chapter does not lock you in. A Chapter 7 debtor has the right to convert to Chapter 11 at any time, as long as the case was not already converted from another chapter previously; this right cannot be waived by agreement.12Office of the Law Revision Counsel. 11 USC 706 – Conversion A debtor might do this after realizing a business has more going-concern value than liquidation value.
Going the other way, a Chapter 11 debtor can convert to Chapter 7 if reorganization isn’t working, provided the debtor is still in possession of the estate and the case was originally filed voluntarily.13Office of the Law Revision Counsel. 11 USC 1112 – Conversion or Dismissal Creditors and the U.S. Trustee can also ask the court to convert a Chapter 11 to Chapter 7 when the debtor misses reporting deadlines or when reorganization clearly isn’t going to work. Either direction, the debtor still has to qualify for the chapter they’re converting into.
Credit Report Impact
A bankruptcy filing under any chapter can stay on your credit report for up to 10 years from the date the court enters the order for relief.14Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports The federal statute draws no distinction between chapters. In practice, Chapter 7 and Chapter 11 filings typically stay on for the full 10-year window.
The impact is real but not permanent. Most people who complete a Chapter 7 start receiving credit offers within a year or two, though initial terms are unfavorable. For businesses in Chapter 11, the goal is usually to emerge as a going concern with restructured debt, so ongoing operations matter more than the credit score itself. For individual Chapter 11 filers, the credit recovery timeline is similar to Chapter 7.