Chapter 7 vs. Chapter 13 Bankruptcy

Your income relative to the Minnesota median is the first factor in determining which chapter you qualify for. A bankruptcy attorney can run the 'means test' for you, or check the current median figures at the U.S. Trustee's website.

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Chapter 13 lets you catch up on missed mortgage payments over a 3–5 year repayment plan while keeping your home. Chapter 7 does not have this feature — if you are behind, the lender can still foreclose.

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With income below the median, you likely pass the means test for Chapter 7. Credit card debt, medical bills, and personal loans are dischargeable. A Chapter 7 case typically takes 3–4 months from filing to discharge.

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Chapter 13 lets you create a repayment plan to catch up on mortgage arrears over 3–5 years while keeping your home.

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Student loans can only be discharged if you can prove 'undue hardship,' which is a very high standard. However, bankruptcy can still eliminate your other debts, freeing up income to pay student loans. An income-driven repayment plan may also help.

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Income tax debts may be dischargeable in Chapter 7 if they meet specific age and filing requirements (generally: tax return was due more than 3 years ago, filed more than 2 years ago, assessed more than 240 days ago). Other tax debts are not dischargeable.

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Even with above-median income, the means test accounts for certain allowed expenses. Without regular income, Chapter 13 is not an option because it requires a repayment plan funded by your income. Talk to a bankruptcy attorney about whether you can pass the Chapter 7 means test.

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The means test subtracts allowed expenses from your income. Many above-median filers still qualify for Chapter 7. If you don't qualify, Chapter 13 lets you keep all assets while repaying over 3–5 years. A bankruptcy attorney can run the exact numbers.

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In Chapter 7, non-exempt assets can be sold to pay creditors. In Chapter 13, you keep all your property but must pay creditors at least as much as they would receive in a Chapter 7 liquidation, spread over a 3–5 year plan.

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Minnesota has its own exemption amounts that protect certain property from creditors: homestead (up to $480,000 equity), motor vehicle ($5,200), household goods ($12,150 total), and more. An attorney can review your specific assets.

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