Most consumer bankruptcy cases are filed under one of two chapters of the Bankruptcy Code: Chapter 7 or Chapter 13. If you work with petitions, whether as a paralegal, a legal assistant or a Virtual Bankruptcy Assistant, you will see both constantly. Knowing the basic difference helps you read a client file, ask the attorney better questions and spot problems before they reach the court.
One note first: which chapter a debtor should file is a legal decision. It belongs to the attorney. This primer is about understanding the work, not advising anyone.
Chapter 7 in a nutshell
Chapter 7 is often called "liquidation" bankruptcy. A court-appointed trustee looks at what the debtor owns. Property that the law protects, through exemptions, stays with the debtor. Property that is not protected can, in principle, be sold to pay creditors. In practice, many consumer cases involve little or nothing for the trustee to sell. At the end, eligible debts are discharged.
Chapter 7 uses a means test: a comparison of the debtor's income against the median for their state and household size, with further calculations when income is above the median. That is why accurate income information matters so much, and why petition drafting for Chapter 7 puts so much weight on the six months of income before filing.
Chapter 13 in a nutshell
Chapter 13 is a repayment plan for debtors with regular income. The debtor proposes a plan to pay some or all of what they owe over a period of three to five years, making payments through a Chapter 13 trustee. In return, the debtor generally keeps their property, and the plan can be used to catch up on missed mortgage or car payments over time. Whether the plan runs three years or up to five depends partly on how the debtor's income compares with the median.
A Chapter 13 plan has to meet legal requirements, including that creditors receive at least as much as they would have in a Chapter 7 liquidation and that certain priority debts are paid in full. That makes the figures on the schedules, and the plan itself, a bigger part of the work.
Side by side
| Question | Chapter 7 | Chapter 13 |
|---|---|---|
| What happens | Non-exempt property may be liquidated; eligible debts discharged | Debtor pays through a court-approved plan over three to five years |
| Income test | Means test determines eligibility | Regular income needed; income affects plan length and payment |
| Property | Protected by exemptions | Generally kept, with the plan accounting for its value |
| Paperwork | Petition, schedules, statement of financial affairs, means test | All of that, plus the plan and related income and expense detail |
| Complexity | Foundation skill | Builds on Chapter 7, with more concepts |
Why the paperwork differs
The core of both petitions is the same: debtor information, assets, debts, income, expenses and the statement of financial affairs. A Chapter 13 adds the plan and the supporting calculations. If you are learning, Chapter 7 is the sensible place to begin, because Chapter 13 builds on it.
Where this leads
NAVBA's certification exams follow the same path: the Chapter 7 exam is the foundation, the Chapter 13 exam is the advanced level, and you can take both together. Certification is optional, and the training that the exams are based on is available through 713 Training. If you want to see how this work becomes a business, read about joining NAVBA.
If you are an attorney looking for help with either chapter, see how to hire a Virtual Bankruptcy Assistant.
This article is general information about bankruptcy practice, not legal advice. Local rules, trustee preferences and state law vary, so confirm current requirements for your jurisdiction.
