Chapter 7 vs. Chapter 13: which bankruptcy is right for you in Philadelphia & South Jersey?
TL;DR
Chapter 7 bankruptcy liquidates non-exempt property and discharges qualifying unsecured debt in about four to six months. Chapter 13 sets a three- to five-year payment plan that lets you keep your property and cure a mortgage. The right chapter depends on the § 707(b) means test, your debt mix, and whether you need to save a house or vehicle.
Chapter 7 bankruptcy and Chapter 13 bankruptcy are the two consumer chapters of the U.S. Bankruptcy Code. Chapter 7 is a liquidation that discharges qualifying unsecured debt in roughly four to six months. Chapter 13 is a three- to five-year payment plan that lets the filer keep property and catch up on a mortgage. Which one fits turns on the § 707(b) means test, the debt mix, and what you need to keep.
Both chapters stop creditor collection the moment you file, through the automatic stay under 11 U.S.C. § 362. The stay also stops wage garnishment immediately. Both can end with a discharge that wipes personal liability on qualifying debts. The differences are how each chapter gets there. Here is what each one does, who qualifies, what each costs, and how to decide if you are filing in Philadelphia or South Jersey.
The short version: a side-by-side comparison
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| What it does | Liquidates non-exempt assets; discharges qualifying unsecured debt | Repays creditors from income over 3 to 5 years; discharges remaining qualifying debt at plan end |
| Who can file | Individuals and business entities | Individuals only, with regular income |
| Income test | Means test under § 707(b) for primarily consumer debt | No means test; needs regular income to fund the plan |
| Debt limit | None | Combined debt limit under § 109(e), currently around $2.75M combined |
| Property | Trustee sells non-exempt assets; you keep what is exempt | Keep all property if you complete the plan |
| Foreclosure | Stay pauses foreclosure; does not cure arrears | Cure mortgage arrears through the plan; stop foreclosure |
| Timeline to discharge | About 4 to 6 months after filing | After 3 to 5 years of plan payments |
| Court filing fee | $338 | $313 |
| Best for | Lower-income filers with mostly unsecured debt and limited non-exempt assets | Filers with regular income, a home to save, or income above the means test |
How Chapter 7 bankruptcy works
A Chapter 7 case starts with a petition and a set of schedules listing assets, debts, income, and expenses. The court appoints a Chapter 7 trustee under 11 U.S.C. § 701. The trustee’s job under § 704 is to gather the debtor’s non-exempt property, sell it, and distribute the proceeds to creditors. The debtor’s exempt property is off the table.
For most consumer cases, there is nothing for the trustee to take. The debtor’s belongings fit inside the exemptions, and the case is reported as a “no-asset” case. The debtor attends one meeting of creditors under § 341, completes the required debtor education course, and waits for the discharge order. Section 727 discharges qualifying personal liability for unsecured debts the day the order enters. For more detail on consumer Chapter 7, see our Chapter 7 page.
How Chapter 13 bankruptcy works
A Chapter 13 case is built around a repayment plan. The debtor files a petition, the same schedules, and a proposed plan that runs for three to five years. The plan classifies creditors and proposes treatment for each class under § 1322. The debtor’s projected disposable income funds the plan, and the bankruptcy estate pays creditors over the plan term.
Chapter 13 has two features Chapter 7 does not. First, the plan can cure mortgage arrears and stop a foreclosure, even when the lender will not modify the loan on its own. Second, the plan can reduce certain secured debts to the value of the collateral under § 506(a), a process commonly called cramdown, with limits on principal-residence mortgages and 910-day car loans. When the debtor completes the plan, § 1328 discharges remaining qualifying debt. Our Chapter 13 page walks through the consumer mechanics in detail, and debt consolidation through Chapter 13 covers the strategic angle when consolidation is the goal.
Who qualifies for each chapter
Chapter 7 is available to individuals and business entities. The biggest eligibility hurdle for individuals is the means test under 11 U.S.C. § 707(b). The means test compares the filer’s household income to the median income for the household size in the state of residence. Filers below the median qualify automatically. Filers above the median go through a second calculation that subtracts allowable expenses and tests whether projected disposable income would fund a meaningful Chapter 13 payment. If the formula triggers a presumption of abuse, Chapter 7 is off the table absent special circumstances. The U.S. Trustee publishes updated median income figures every six months; confirm the current Pennsylvania or New Jersey figure for your household size before assuming where you fall.
Chapter 13 is available only to individuals with regular income. Section 109(e) caps total debt at a combined limit (currently around $2.75M combined, adjusted every three years under § 104(b)). An individual whose business debts push the total above the limit cannot use Chapter 13; Subchapter V or full Chapter 11 may fit instead.
What you keep in each chapter
Exemptions under § 522 protect specific categories of property from the bankruptcy estate. Pennsylvania and New Jersey filers can choose between the federal bankruptcy exemptions under § 522(d) and their state’s exemption scheme. For most consumer filers in either state, the federal scheme is the better fit because it carries a meaningful homestead and a flexible wildcard.
In Chapter 7, exempt property is yours to keep. The trustee can sell anything that is not exempt. In Chapter 13, you keep all property regardless of exemption status, but the plan has to pay general unsecured creditors at least what they would have received in a Chapter 7 liquidation of the same estate. That floor is one reason a homeowner with significant equity sometimes does better in Chapter 13 than Chapter 7. Our equity calculator gives a rough picture of where you sit before the consult.
Timeline and cost
A typical Chapter 7 case closes in four to six months from the petition date to the discharge order. The Chapter 7 court filing fee is $338, set by the Judicial Conference under 28 U.S.C. § 1930. Debtor counsel fees vary with case complexity, and the Law Office of Mike Assad offers a $999 Chapter 7 program for qualifying filers, with flat-fee pricing and payment plans where they fit.
A Chapter 13 case runs three to five years from filing through plan completion to the discharge. The Chapter 13 court filing fee is $313. Debtor counsel fees are typically larger in Chapter 13 than Chapter 7 because the case stays active for the plan term, but a meaningful part of those fees can be paid through the plan rather than up front. That is one of the structural advantages of Chapter 13 for a filer who is short on cash today but has steady income going forward.
How to decide between Chapter 7 and Chapter 13
A few questions surface the right chapter quickly.
- Do you need to save a house from foreclosure? Chapter 13 cures arrears through the plan. Chapter 7 only pauses collection during the case.
- Are you above the median income? If the means test pushes you out of Chapter 7, Chapter 13 is the default fallback.
- Do you have non-exempt assets worth protecting? Chapter 13 lets you keep them by paying their value to unsecured creditors over the plan term.
- Is your debt mostly unsecured and your income limited? Chapter 7 is the faster, lower-cost path to discharge.
- Are you a business entity? Chapter 13 is closed to LLCs and corporations. The options are Chapter 7 liquidation or Subchapter V reorganization for small business.
A note on Philadelphia & South Jersey practice
Philadelphia-area consumer cases file with the U.S. Bankruptcy Court for the Eastern District of Pennsylvania. South Jersey cases (Camden, Burlington, Gloucester, Atlantic, Cape May, Cumberland, Salem) file with the District of New Jersey, Camden vicinage. Ocean County matters go to Trenton. The federal Bankruptcy Code controls everywhere, but each district has its own panel of Chapter 7 and Chapter 13 trustees, local rules, and confirmation patterns. Local familiarity with how a specific district handles plan confirmation, exemption objections, and § 341 meetings can shape a case from the petition forward.
Talk to a bankruptcy lawyer who serves Philadelphia & South Jersey
The Law Office of Mike Assad helps individuals across Philadelphia and South Jersey file Chapter 7 and Chapter 13 cases. Mike is admitted in both Pennsylvania and New Jersey and has handled consumer bankruptcy matters in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania and the District of New Jersey.
What working with the firm looks like:
- A free, confidential consultation with no obligation, and a straight read on whether Chapter 7 or Chapter 13 fits your situation.
- Flat-fee pricing where the case structure allows, with payment plans available. A $999 Chapter 7 program for qualifying filers.
- Fully virtual meetings by phone or Zoom, so you never have to come to an office.
- The same lawyer on your case from the first call through discharge, and a live person on the phone when you call.
Call (609) 808-3300 or book your free consultation online. The firm has offices in Cherry Hill, New Jersey and Philadelphia, Pennsylvania. If it would help, you can share your debt picture before the call so the consultation starts from the facts.
Frequently asked questions
Neither is universally better. Chapter 7 is faster and less expensive when the filer qualifies under the means test and does not need to cure a mortgage. Chapter 13 fits filers above the means test, filers who need to stop a foreclosure by curing arrears, and filers with non-exempt assets they want to keep.
In Chapter 7, you keep the house if the equity fits within the homestead exemption and you stay current on the mortgage. In Chapter 13, you keep the house and can cure any mortgage arrears through the plan, even if the equity is above the homestead exemption (you pay the non-exempt value to unsecured creditors over the plan term).
A typical Chapter 7 case closes about four to six months after filing. A Chapter 13 case runs three to five years from filing through plan completion to the discharge order.
Chapter 7 uses the § 707(b) means test rather than a fixed income cap. The test compares the filer’s household income to the U.S. Trustee’s median for the state and household size, then runs a second formula for filers above the median. Pennsylvania and New Jersey median income figures update twice a year, so confirm the current number for your household size before assuming where you fall.
Yes, conversion is available under 11 U.S.C. § 1307, subject to court approval and the § 707(b) means test for individual debtors. Conversion typically happens when a Chapter 13 plan becomes unaffordable and the filer would have qualified for Chapter 7 from the start.
Mike Assad
Founding attorney, admitted in Pennsylvania and New Jersey. Mike has guided individuals and businesses through bankruptcy across Pennsylvania and New Jersey.