Chapter 7 vs. Chapter 13 — choosing with 2024 filing data.
U.S. bankruptcy filings rose 16% year over year. What the data says about when each chapter actually makes sense.
Bankruptcy filings in the United States rose 16.2% year over year in the twelve months ending June 30, 2024 — reaching 486,613 total filings. Consumer filings drove the bulk of the increase. Inside the consumer tier, the choice between Chapter 7 and Chapter 13 is decisive.
Chapter 7: the liquidation chapter
Chapter 7 discharges most unsecured debt — credit cards, medical bills, personal loans — in approximately 90 days. Eligibility depends on the means test, which compares household income to state medians. Assets above state exemption levels can be liquidated by the trustee; in Florida, the unlimited homestead exemption makes most primary residences untouchable.
Chapter 13: the reorganization chapter
Chapter 13 proposes a 3-to-5-year repayment plan funded by the debtor's disposable income. Chapter 13 saves homes from foreclosure through plan-cure of arrearages, saves vehicles through cram-down where eligible, and reaches debtors whose income exceeds the Chapter 7 median.
When Chapter 7 makes sense
- Unsecured debt is the dominant problem.
- Income is at or below the Florida median.
- Non-exempt assets are minimal.
- No pending foreclosure sale on a home the debtor wants to keep with arrearage cure.
When Chapter 13 makes sense
- A foreclosure sale is imminent and the debtor wants to keep the home.
- Income exceeds Chapter 7 means-test limits.
- There are significant tax debts within the look-back that can be paid through the plan.
- Non-exempt assets the debtor wants to keep exceed exemption values.
