Bankruptcy Chapters 7, 11, And 13 Explained
Not sure which chapter or alternative fits you? Take the 10-second check below.
The Three Chapters, And Who Files Each
Bankruptcy is a legal process supervised by a federal court that either erases qualifying debt or restructures it into a payment plan. Three chapters do most of the work, and they are built for different situations. Chapter 7 and Chapter 13 are for individuals. Chapter 11 is mainly for businesses, though some high-debt individuals use it too.
| Chapter | What it does | Who usually files |
|---|---|---|
| Chapter 7 | Liquidation that discharges most unsecured debt | Individuals with limited income and few non-exempt assets |
| Chapter 13 | A 3 to 5 year court-supervised repayment plan | Individuals with steady income who want to keep property |
| Chapter 11 | Reorganization while operations continue | Businesses, and some individuals with very high debt |
How Chapter 7 Liquidation Works
Chapter 7 is the fastest route, often closing in three to six months. To qualify you generally have to pass a means test showing your income is below your state's median or that you cannot reasonably repay. A court-appointed trustee can sell your non-exempt property, though exemptions protect a great deal in practice, and the proceeds go to creditors. When it is done, most unsecured debts such as credit cards and medical bills are discharged, and those creditors can no longer collect, sue, or garnish.
The trade-off is durable. A Chapter 7 filing can stay on your credit report for up to ten years. It also does not erase everything: most student loans, recent taxes, child support, and alimony typically survive a discharge.
How Chapters 13 And 11 Reorganize Debt
Chapter 13 is for individuals with regular income who want to keep property a Chapter 7 trustee might otherwise sell. You propose a plan to repay some or all of your debt over three to five years, based on what you can afford, and the court supervises it. Homeowners often use it to cure a mortgage default and stop foreclosure while keeping the house. A Chapter 13 filing generally stays on your report for seven years, and scores often recover a little faster because you are repaying.
Chapter 11 works on the same reorganization idea but at business scale. A company keeps operating while it proposes a plan its creditors and the court must approve. There is no debt limit and no income requirement, which is why it also gets used by individuals with unusually large or complex debts.
Bankruptcy Or Settlement: Reading Your Own Numbers
Bankruptcy is powerful, but it is not the only way to deal with debt you cannot repay, and for many people it is not the first choice. The honest comparison is between the long, public record of a filing and the alternatives that work outside the court. Debt settlement, for instance, negotiates unsecured balances for less than the full amount and stays off the public record, though it lowers your credit while accounts go delinquent, and results vary and are not typical.
The way to decide is arithmetic, not fear. If your income could clear the balance in a few years at a better rate, a debt management plan may beat both. If the balance is genuinely beyond your income, weigh bankruptcy honestly against debt negotiation and the debt settlement program before deciding. Seeing them side by side is what makes the choice clear.
“After 25 years, I have watched a lot of people treat bankruptcy as either the end of the world or the easy button, and it is neither. For someone with almost no income and no assets to protect, Chapter 7 can be a genuine fresh start, and I would never talk them out of it. But I have also seen people file when a settlement or a repayment plan would have solved the problem without a ten-year mark on their record. Bankruptcy is a legal decision, so the person who should weigh it with you is a licensed attorney, not a salesperson. What I tell everyone is the same: get the real numbers first, then compare the court route against the alternatives honestly, and let the math decide.”Eric Pemper, Founder of CuraDebt since 2001
Frequently Asked Questions
What is the difference between Chapter 7, 11, and 13 bankruptcy?
Chapter 7 is liquidation: it discharges most unsecured debt for individuals with limited income, often in a few months. Chapter 13 is a court-supervised repayment plan over three to five years for individuals with steady income. Chapter 11 is reorganization, used mainly by businesses and some high-debt individuals, that lets operations continue.
What does Chapter 7 bankruptcy do?
Chapter 7 discharges most unsecured debts, such as credit cards and medical bills, so those creditors can no longer collect, sue, or garnish. To qualify you generally must pass a means test. A trustee may sell non-exempt property, though exemptions protect much of what most filers own, and cases usually close in three to six months.
How long does Chapter 13 last?
A Chapter 13 repayment plan typically runs three to five years, depending on your income and the plan the court approves. You make payments to a trustee, who distributes them to creditors. Homeowners often use the plan to cure a mortgage default and stop foreclosure while keeping the home.
Who can file Chapter 11 bankruptcy?
Chapter 11 is primarily for businesses that want to reorganize while continuing to operate, but individuals with unusually large or complex debts can also file. There is no debt limit and no income requirement, which is why it is used for cases too large or complicated for Chapter 13.
How long does bankruptcy stay on your credit report?
A Chapter 7 filing can remain on your credit report for up to ten years. A Chapter 13 filing generally stays for seven years. Credit often begins recovering before the mark disappears, and some lenders will consider you within a few years, especially after a Chapter 13 in which you repaid debt.
What debts are not erased by bankruptcy?
Bankruptcy does not discharge everything. Most student loans, recent income taxes, child support, alimony, and debts from fraud typically survive a discharge. Secured debts like a mortgage or car loan remain tied to the property unless you surrender it. The exact treatment depends on your case and the chapter.
Does bankruptcy stop creditor lawsuits and garnishment?
Filing triggers an automatic stay that generally halts collection efforts, lawsuits, and wage garnishment while the case proceeds. The stay is powerful but not unlimited, and certain obligations like some support payments are not covered. A licensed attorney can explain how it applies to your specific debts.
Is debt settlement better than bankruptcy?
It depends on your situation. Settlement negotiates balances down, stays off the public record, and often completes in two to four years, but it lowers your credit while accounts go delinquent, and results vary and are not typical. Bankruptcy can erase more debt but carries a longer reporting impact. Compare both against your numbers.
Do I need a lawyer to file bankruptcy?
You are allowed to file on your own, but bankruptcy is a legal process with strict rules, deadlines, and asset exemptions, and mistakes can be costly. Most people, especially in Chapter 13 or Chapter 11, work with a licensed bankruptcy attorney. CuraDebt is not a law firm and does not provide bankruptcy services.
Will I lose my house or car in bankruptcy?
Not always. In Chapter 7, exemptions protect a certain amount of home and vehicle equity, and you can often keep secured property if you stay current on the loan. Chapter 13 is specifically designed to help you keep assets while you repay. What you keep depends on your equity and your state's exemptions.
How Do I Compare My Options Without Paying Anything?
Submit the quick form with your approximate debt amount. It takes about a minute and there is no obligation. CuraDebt is a free service that reviews the information you submit and matches you with an independent, licensed debt relief provider, so you can compare your options side by side against your own numbers before you commit to anything.
