Key Differences Between Chapter 7 and Chapter 13 Bankruptcy
| Feature | Chapter 7 (Liquidation) | Chapter 13 (Reorganization) |
|---|---|---|
| Purpose | Discharges most unsecured debts after liquidating non-exempt assets. | Allows individuals to reorganize debts and repay them over time while retaining assets. |
| Eligibility | Must pass a means test; income must be below a certain threshold. | Must have a regular income; unsecured debts must be below $465,275 and secured debts below $1,395,875 (as of April 1, 2025). |
| Process Duration | Typically 3–6 months. | Repayment plan spans 3–5 years. |
| Asset Impact | Non-exempt assets may be sold to repay creditors; exempt assets are retained. | Debtors keep all assets but must repay creditors through a court-approved plan. |
| Debt Repayment | No repayment plan; debts are discharged after asset liquidation. | Debtors make monthly payments to a trustee, who distributes funds to creditors. |
| Foreclosure | May temporarily halt foreclosure proceedings but doesn’t provide a mechanism to catch up on missed payments. | Can stop foreclosure and allow debtors to catch up on missed mortgage payments over time. |
| Credit Report Impact | Remains on credit report for up to 10 years. | Remains on credit report for up to 7 years. |
| Best For | Individuals with limited income and few assets seeking quick debt relief. | Individuals with regular income who want to retain assets and have the ability to repay debts over time. |
🏠 Considerations for South Florida Residents
-
Homestead Exemption: Florida offers a generous homestead exemption, potentially protecting the full value of your primary residence from creditors. This can influence the decision between Chapter 7 and Chapter 13, especially if you have significant home equity.
-
Means Test: Florida’s median income levels are used to determine Chapter 7 eligibility. If your income exceeds the median, you may need to file under Chapter 13.
✅ Summary
-
Choose Chapter 7 if: You have limited income, few assets, and seek a quicker resolution to discharge unsecured debts.
-
Choose Chapter 13 if: You have a regular income, wish to retain valuable assets (like your home or car), and can commit to a repayment plan over several years.
Go to my website 🙂
Find me