Chapter 7 and Chapter 13 are the two bankruptcy chapters most often considered by individuals. Both are federal court proceedings, but they address debt in different ways. The appropriate chapter depends on income, property, secured debts, recent financial activity, prior cases, and the goals a person is trying to accomplish.
This overview explains several practical differences for Louisiana residents. It is not a recommendation to file under either chapter, and it cannot replace advice based on a complete review of the facts.
Chapter 7 generally focuses on liquidation and discharge
Chapter 7 does not require the debtor to propose a multi-year repayment plan. A trustee is appointed to review the petition, schedules, financial records, exemptions, and property of the bankruptcy estate. Property that is not protected by an applicable exemption may be available for administration, although many individual Chapter 7 cases are reported as no-asset cases.
Eligibility involves several considerations. Individuals with primarily consumer debts generally must complete the means-test analysis, and prior filings or other circumstances can affect available relief. A discharge may eliminate personal liability for many qualifying debts, but not every debt is dischargeable. Liens may also survive even when personal liability is discharged.
The United States Courts provides additional background in its Chapter 7 Bankruptcy Basics.
Chapter 13 uses a court-supervised repayment plan
Chapter 13 is designed for individuals with regular income who can fund a repayment plan. The plan commonly lasts three to five years. During that period, the debtor makes payments to a Chapter 13 trustee, who distributes funds according to the confirmed plan.
Chapter 13 may provide tools for addressing mortgage arrears, vehicle debt, priority obligations, or property that could present concerns in Chapter 7. Keeping property does not necessarily mean keeping it without cost: the plan must satisfy statutory requirements, and ongoing secured-debt and support obligations may still have to be paid.
A Chapter 13 discharge generally follows completion of required plan payments and other statutory conditions. The United States Courts’ Chapter 13 overview explains the federal process in greater detail.
Chapter 7 and Chapter 13 at a glance
| Issue | Chapter 7 | Chapter 13 |
|---|---|---|
| Basic structure | Trustee review and potential administration of nonexempt estate property | Court-supervised repayment plan funded over time |
| Typical duration | Often shorter, although timing varies | Usually three to five years |
| Income analysis | Means-test and other eligibility rules may apply | Regular income and the ability to fund a feasible plan are important |
| Property concerns | Nonexempt property may be subject to administration | Property can often be retained if plan requirements are satisfied |
| Past-due secured debt | Usually does not provide a long-term plan to cure arrears | May allow certain arrears to be addressed through the plan |
| Discharge | May occur after administration of an eligible case | Generally follows completion of required plan payments and conditions |
Louisiana exemptions and local procedure matter
Bankruptcy is federal law, but exemption analysis and local court procedure can materially affect a Louisiana case. The value and ownership of a home, vehicle, household property, retirement funds, business interests, claims against others, and recently transferred property should be reviewed before filing.
Questions that help identify the better fit
- Is income sufficient to fund a Chapter 13 plan?
- Are mortgage or vehicle payments behind?
- Is there property that may not be fully exempt?
- Are tax, support, student-loan, or other potentially nondischargeable obligations involved?
- Has there been a recent transfer, repayment to a relative, lawsuit, garnishment, repossession, or foreclosure?
- Has the person filed bankruptcy or received a discharge before?
- Is the principal goal a prompt discharge, protection of property, or time to address arrears?
The answers may point toward one chapter, another chapter, or a nonbankruptcy alternative. Filing should follow a full review of debts, assets, income, expenses, transactions, and deadlines.
Speak with a New Orleans bankruptcy attorney
Choosing between Chapter 7 and Chapter 13 requires more than comparing two labels. The consequences depend on the person’s financial history and the relief available under current law. Review Bickham Law’s bankruptcy services to learn more about representation for individuals and businesses in Louisiana.
Contact Bickham Law to schedule a consultation about your circumstances and available options.
This article provides general information only and is not legal advice. Reading this article or contacting Bickham Law does not create an attorney-client relationship. Bankruptcy law and exemption rules can change, and outcomes depend on the facts and applicable law.