Differences Between Chapters 7, 11 & 13?

Chapter 7 and 13 bankruptcies are the most commonly filed cases in the United States. Whether you can file a Chapter 7 or Chapter 13 bankruptcy depends on your income, assets, debts, and your financial goals. Chapter 11 bankruptcy is a form of bankruptcy for businesses to reorganize.

Thumbnail sketch of the different chapters:

  • Chapter 7 is useful for discharging (getting rid of) debt without having any ongoing payments.
    • You need to show you don’t have too many assets and that you need all your income to live on.
    • Mostly done by families, but sometimes is filed by businesses that want to close.
    • Most bankruptcies are filed under this chapter.
  • Chapter 13 is also helpful for getting rid of debts, but requires ongoing payments for a few years (usually 3-5 years).
  • Chapter 11 is usually used by businesses to keep the business going by reorganizing, but to manage debts.

Chapter 7 Bankruptcy

Chapter 7 is a liquidation bankruptcy designed to wipe out your general unsecured debts such as credit cards and medical bills. You qualify for Chapter 7 bankruptcy if you are unable to pay your debts as they come due. If you make too much money, you may be required to file a Chapter 13 bankruptcy (discussed below). But most of the bankruptcy cases filed in West Virginia are Chapter 7 cases.

When you file for Chapter 7 bankruptcy, a trustee is appointed to administer your case. The Chapter 7 trustee’s job is to sell your nonexempt property to pay back your creditors. If you don’t have any nonexempt assets, your creditors receive nothing. This is the case for virtually all those that file. You can usually protect and keep everything you own in a Chapter 7 case.

(For comprehensive information on Chapter 7, visit our Chapter 7 Bankruptcy topic area.)

Chapter 13 Bankruptcy

Chapter 13 is a reorganization bankruptcy designed for debtors with regular income who can pay back at least a portion of their debts through a repayment plan. If you make too much money to qualify for Chapter 7 bankruptcy, a Chapter 13 case can still provide you substantial relief. Many debtors also choose to file for Chapter 13 bankruptcy because it offers many benefits that Chapter 7 bankruptcy does not (such as the ability to catch up on missed mortgage payments or strip wholly unsecured second mortgages from your house).

In Chapter 13 bankruptcy, you get to keep all of your property (including nonexempt assets). In exchange, you pay back all or a portion of your debts through a repayment plan. The amount you must pay back depends on your income, expenses, and types of debt. Typically, Chapter 13 bankruptcy is for debtors who can afford to make monthly payments to get caught up on missed mortgage or car payments or pay off nondischargeable debts such as alimony or child support arrearages.

Chapter 11 Bankruptcy

Chapter 11 is a reorganization bankruptcy designed for businesses to restructure debts and discharge debts over time. It is very similar to a Chapter 13 bankruptcy, in that you make payments over a period of time, but is for corporations and LLCs, or individuals with higher income and/or debt limits. A Chapter 11 will allow a business to stay open and repay debts over time. Most individuals qualify for a Chapter 13, which is cheaper, but is for many mid-sized or larger businesses do not qualify and must file a Chapter 11 bankruptcy to restructure their debts. If you own a business that needs to restructure debt over time, you might be a good candidate for a Chapter 11 bankruptcy.

Subchapter V

“Subchapter V” (or “subchapter five”) is a special kind of Chapter 11 bankruptcy that was created during the COVID-19 pandemic and offers a more cost-effective option for small-to-midsize businesses. A Chapter Subchapter V gives much more power to the debtor and much less power to creditors, which allows the process to be streamlined compared to other Chapter 11 bankruptcies. If your business has debts under $7.5 million and you want to restructure or reduce those debts, a Subchapter V may be a highly cost-effective option.

To find out if bankruptcy is right for you, please fill out a questionnaire at our Free Consultation – Bankruptcy and Debt page or contact Pepper and Nason by calling us at (304) 346-0361 today. There is no charge for the initial office visit.