Differences between Chapter 7 and Chapter 13 Bankruptcy

Chapter 7Chapter 13
Type of BankruptcyLiquidationReorganization
Who Can File?Individuals and Business EntitiesIndividuals Only (Including Sole Proprietors)
Eligibility RestrictionsDisposable Income Must Be Low Enough to Pass the Chapter 7 Means TestCannot Have More Than $383,175 of Unsecured Debt or $1,149,525 of Secured Debt
How Long Does It Take to Receive a Discharge?Typically Three to Five MonthsUpon Completion of All Plan Payments (Usually Three to Five Years)
What Happens to Property in Bankruptcy?Trustee Can Sell All Nonexempt Property to Pay CreditorsDebtors Keep All Property But Must Pay Unsecured Creditors an Amount Equal to Value of Nonexempt Assets
Allows Removing Unsecured Junior Liens from Real Property Through Lien Stripping?NoYes
Allows Reducing the Principal Loan Balance on Secured Debts Through a Loan Cramdown?NoYes
BenefitsAllows Debtors to Quickly Discharge Most Debts and Get a Fresh StartAllows Debtors to Keep Their Property and Catch Up on Missed Mortgage, Car, and Nondischargeable Priority Debt Payments
DrawbacksTrustee Can Sell Nonexempt Property. Does Not Provide a Way to Catch Up on Missed Payments to Avoid Foreclosure or Repossession. Must Make Monthly Payments to the Trustee for Three to Five Years. May Have to Pay Back a Portion of General Unsecured Debts.