Chapter comparison · Maryland consumer cases
Chapter 7 vs Chapter 13 bankruptcy
Chapter 7 is the liquidation chapter: a trustee may sell property that is not exempt, and an eligible debtor may receive a discharge under 11 U.S.C. 727 without any payment plan. Chapter 13 is the repayment chapter: the debtor may retain property subject to the confirmed plan and secured-creditor rights, pays creditors from future income through a plan that usually lasts three to five years under 11 U.S.C. 1325(b), and receives a discharge under 11 U.S.C. 1328(a) only after completing the payments. Eligibility for Chapter 7 runs through the means test in 11 U.S.C. 707(b), and a Chapter 13 plan must pay priority tax claims in full under 11 U.S.C. 1322(a)(2). Law Office of Alexander Powell, PLLC files consumer cases in the District of Maryland. The firm reviews income, property, debts, and filing history to assess the available options.
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Side by side
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 is the liquidation chapter: a trustee may sell property that is not exempt, and an eligible debtor may receive a discharge under 11 U.S.C. 727 without any payment plan. Chapter 13 is the repayment chapter: the debtor may retain property subject to the confirmed plan and secured-creditor rights, pays creditors from future income through a plan that usually lasts three to five years under 11 U.S.C. 1325(b), and receives a discharge under 11 U.S.C. 1328(a) only after completing the payments.
| Question | Chapter 7 | Chapter 13 |
|---|---|---|
| Who is eligible | Chapter 7 has no debt ceiling. Individual eligibility includes the requirements of 11 U.S.C. 109, including credit counseling and any applicable prior-dismissal bar; consumer cases remain subject to dismissal for abuse under 707(b). | Only an individual with regular income, and only within the debt limits set by 11 U.S.C. 109(e). A debtor who has filed and been dismissed inside the periods in 109(g) is barred for that period. |
| The means test | 11 U.S.C. 707(b)(1) lets the court dismiss a consumer case, or convert it with the debtor's consent, if granting relief would be an abuse. 707(b)(2) supplies the presumption of abuse arithmetic and 707(b)(7) the median-income safe harbor. | No Chapter 7 means-test presumption of abuse. Chapter 13 requires good faith and a feasible plan under 11 U.S.C. 1325(a). The same income figures instead set the applicable commitment period under 11 U.S.C. 1325(b)(4) and the maximum plan length under 11 U.S.C. 1322(d). |
| How long the case runs | No plan. The case turns on the trustee's administration of the estate, and the discharge follows under 11 U.S.C. 727(a) unless one of the listed grounds applies. | Three years, or not less than five years where annualized current monthly income is at or above the applicable state median, under 11 U.S.C. 1325(b)(4). 11 U.S.C. 1322(d) caps the plan at five years. Section 1325(b)(4)(B) permits a shorter commitment period if all allowed unsecured claims are paid in full. |
| What happens to property | Property the debtor claims as exempt under 11 U.S.C. 522(b) is protected from the trustee. Property that is not exempt may be sold to pay creditors. Maryland generally opts out of federal exemptions when Maryland law governs; domicile history and the federal fallback determine the applicable exemption law. | The debtor may retain property subject to secured-creditor rights and the confirmed plan. Unsecured creditors must receive at least the Chapter 7 liquidation value under 11 U.S.C. 1325(a)(4); secured-claim treatment and any projected-disposable-income requirement also apply. |
| How tax debt is treated | 11 U.S.C. 523(a)(1) excepts from discharge a tax of the kind specified in 11 U.S.C. 507(a)(3) or 507(a)(8), and taxes for which a required return was never filed or was filed late and within two years before the petition. Older income tax may be dischargeable after reviewing suspension periods, what qualifies as a return, fraud or willful evasion, and the other applicable exceptions. The timing test is set out on the bankruptcy and IRS tax debt page, and the settlement comparison on bankruptcy vs offer in compromise. | 11 U.S.C. 1322(a)(2) requires the plan to provide for full payment, in deferred cash payments, of all claims entitled to priority under 11 U.S.C. 507, unless the holder of a particular claim agrees to different treatment. Priority tax is paid, not erased. |
| What the discharge covers | 11 U.S.C. 727(a) directs the court to grant the debtor a discharge unless one of the grounds listed in that subsection applies, and 11 U.S.C. 523(a) excepts the listed categories of debt from it. | 11 U.S.C. 1328(a) grants the discharge as soon as practicable after the debtor completes all payments under the plan, and excepts the debts that subsection lists, including the priority taxes described in 507(a)(8)(C). |
Dollar thresholds are adjusted on a published schedule.
The governing rules.
11 U.S.C. 707(b)(1) provides that, after notice and a hearing, the court may dismiss a case filed by an individual debtor whose debts are primarily consumer debts, or with the debtor's consent convert it to a case under chapter 11 or 13, if it finds that granting relief would be an abuse of the provisions of the chapter. 11 U.S.C. 727(a) provides that the court shall grant the debtor a discharge unless one of the grounds listed in that subsection applies.
On the Chapter 13 side, 11 U.S.C. 1322(a)(2) provides that the plan shall provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507, unless the holder of a particular claim agrees to a different treatment of that claim. 11 U.S.C. 1325(b)(1) provides that on an objection the court may not approve a plan unless the claim is paid in full or the plan commits all of the debtor's projected disposable income for the applicable commitment period, and 1325(b)(4) defines that period as three years, or not less than five years where annualized current monthly income is at or above the applicable state median for the household size.
The tax sections are read together. 11 U.S.C. 523(a)(1) excepts from an individual discharge a debt for a tax of the kind and for the periods specified in 11 U.S.C. 507(a)(3) or 507(a)(8), and separately a tax for which a required return was not filed, or was filed after its due date and after two years before the petition date. 11 U.S.C. 507(a)(8)(A) reaches an income tax for which a return was last due, including extensions, after three years before the petition date, or that was assessed within 240 days before the petition date. The firm establishes those dates from returns, extensions, account transcripts, and relevant collection or court records for each tax year.
11 U.S.C. 707, dismissal of a case or conversion
11 U.S.C. 727, discharge
11 U.S.C. 1322, contents of plan
11 U.S.C. 1325, confirmation of plan
11 U.S.C. 1328, discharge in a chapter 13 case
11 U.S.C. 523, exceptions to discharge
11 U.S.C. 507, priorities
11 U.S.C. 522, exemptions
How the firm evaluates your options.
The firm reviews your income, property, debts, and filing history to assess Chapter 7 and Chapter 13. Tax debt requires a separate review of each year’s returns, assessments, and collection history. The analysis identifies eligibility, property at risk, and how each chapter would treat the debt.
Law Office of Alexander Powell, PLLC files consumer Chapter 7 and Chapter 13 cases in the District of Maryland. Learn about Alexander Powell.
Questions
Common questions about Chapter 7 and Chapter 13.
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 is liquidation and Chapter 13 is repayment. In Chapter 7 a trustee may sell property that is not exempt and an eligible debtor may receive a discharge under 11 U.S.C. 727 with no payment plan. In Chapter 13 the debtor may retain property subject to the confirmed plan and secured-creditor rights, commits future income to a plan that usually lasts three to five years under 11 U.S.C. 1325(b), and receives a discharge under 11 U.S.C. 1328(a) only after completing all payments under that plan.
Does the means test decide which chapter I can file?
It decides whether a Chapter 7 case can be dismissed as an abuse, not which chapter a person must choose. Under 11 U.S.C. 707(b)(1) the court may dismiss a case filed by an individual whose debts are primarily consumer debts, or convert it with the debtor's consent, if granting relief would be an abuse of the chapter. The arithmetic sits in 707(b)(2) and the median-income safe harbor in 707(b)(7). The firm uses the figures in effect on the filing date to assess the means test.
How long does a Chapter 13 plan last?
Three years, or not less than five years where the debtor's annualized current monthly income is at or above the applicable state median for the household size, under the applicable commitment period defined in 11 U.S.C. 1325(b)(4). 11 U.S.C. 1322(d) caps the plan at five years. Section 1325(b)(4)(B) permits a shorter commitment period if all allowed unsecured claims are paid in full. The discharge under 11 U.S.C. 1328(a) comes as soon as practicable after all plan payments are complete, so a plan that is not completed does not produce that discharge.
Which chapter is better for IRS tax debt?
Neither is better in the abstract, because the two chapters do different things with the same debt. 11 U.S.C. 523(a)(1) excepts from a Chapter 7 discharge a tax of the kind specified in 11 U.S.C. 507(a)(3) or 507(a)(8), which turns on dated facts: the return due date, the assessment date, and the date any late return was actually filed. 11 U.S.C. 1322(a)(2) requires a Chapter 13 plan to pay priority tax claims in full in deferred cash payments unless the holder agrees otherwise. The firm evaluates each year using returns, extensions, account transcripts, and relevant collection and court records. See the bankruptcy and IRS tax debt page for that timing test.
How does the firm assess which chapter fits?
The firm assesses income, property, debts, and filing history against the requirements of each chapter. The review uses the income figures effective on the filing date, the exemption law selected through the federal domicile rules, and the records for each tax year. Law Office of Alexander Powell, PLLC files consumer cases in the District of Maryland and quotes fees in writing after a consultation request.
If most of the debt is federal tax.
Read the bankruptcy and IRS tax debt page for the discharge timing test, and bankruptcy vs offer in compromise for the comparison with the administrative settlement path. Outside bankruptcy the same balance runs through IRS collections. Those are different remedies on the same record, and the sequencing belongs in a consultation.
Related pages
Related bankruptcy and tax resources.
- Chapter 7 bankruptcyThe consumer liquidation chapter, the credit counseling briefing, the 341 meeting, and the filing fee.
- Chapter 13 bankruptcyThe consumer repayment chapter, the debt limits, and plan confirmation.
- Maryland bankruptcyThe Maryland hub: the Greenbelt and Baltimore divisions and Maryland exemptions.
- Bankruptcy and IRS tax debtThe discharge timing test for federal income tax years, prong by prong.
- Bankruptcy vs offer in compromiseThe two ways an old federal balance can end, compared.
- IRS collectionsLiens, levies, and payment paths outside bankruptcy are a separate federal route.
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