A seller-carry borrower in financial distress files under Chapter 7 or Chapter 13 depending on income, asset profile, and reorganization goals. Each chapter carries distinct mechanics for the secured carry — discharge of the personal obligation, lien survival, cure-and-maintain rules, and the holder’s workflow across the case. The comparison below walks the decision math from the holder’s perspective.

How Chapter 7 treats the carry

Chapter 7 liquidates the borrower’s non-exempt assets under §704 and discharges the borrower’s personal liability on the carry under §727. The lien against the property survives the discharge under §506 and §524(a) — the holder retains the in rem position on the property. The borrower elects between surrendering the property to the holder (§521(a)(2) statement of intention), retaining the property with continued payments, or reaffirming the debt under §524(c) with court approval where the property is the principal residence.

How Chapter 13 treats the carry

Chapter 13 runs a three- to five-year reorganization plan under §1322. The borrower proposes a plan that cures the pre-petition arrearage on the carry across the plan term while maintaining the post-petition contract installment. The §1322(b)(2) anti-modification rule protects the principal-residence lien from modification of the underlying note terms (rate, term, principal). The §1325(a)(5) confirmation rule requires the plan to preserve the holder’s secured position.

How the discharge runs in each chapter

Chapter 7 discharges the personal obligation within a few months of filing after the §341 meeting and the discharge order. Chapter 13 discharges after plan completion across the three- to five-year term. The discharge in either chapter bars the personal collection action under §524 but leaves the lien intact against the property in rem.

How the holder’s workflow runs in each chapter

Chapter 7 runs a compressed workflow — the §342 notice, the proof of claim, the §521(a)(2) intention review, the reaffirmation analysis where applicable, the discharge order, and the in rem-only posture after discharge. Chapter 13 runs a sustained workflow — the §342 notice, the proof of claim with Form 410A, the plan objection review, the FRBP 3002.1 notice schedule across the plan term, the trustee disbursement records, and the cure-completion posture at plan end.

How the §1322(b)(2) anti-modification rule operates

The §1322(b)(2) rule bars modification of the rights of a holder of a claim secured only by a security interest in the debtor’s principal residence. On an owner-occupied seller carry, the plan cannot strip the lien, reduce the principal, change the rate, or alter the term — the plan cures the arrearage and maintains the contract terms. On an investor-purpose seller carry against non-residential collateral, §1322(b)(2) does not apply and the §506(a) cramdown is available.

How the post-petition payments run in each chapter

Chapter 7 runs the post-petition payments at the borrower’s election — surrender, retain with continued payments, or reaffirm. Where the borrower retains and continues, the post-petition payments run to the holder directly. Chapter 13 runs the post-petition payments on the contract installment to the holder directly, with the pre-petition arrearage running through the trustee as part of the plan distribution.

How the §362 stay terminates in each chapter

The §362 stay terminates on the discharge order or dismissal in Chapter 7, on plan completion or dismissal in Chapter 13, or earlier on a §362(d) motion for relief granted by the court. The §362(d) relief runs on (1) cause including lack of adequate protection or (2) no equity in the property combined with the property not being necessary to an effective reorganization.

How the holder’s recovery runs in each chapter

Chapter 7 recovery runs the in rem lien against the property — the holder proceeds with state-court foreclosure after the stay terminates if the borrower surrenders or defaults on continued payments. Chapter 13 recovery runs the cure-and-maintain plan — the holder receives the pre-petition arrearage through the trustee across the plan term and the post-petition installment directly. Both recoveries preserve the secured position subject to the §1325(a)(5) and §506 frameworks.

Which chapter carries more workload for the holder?

Chapter 13 carries more workload across the case life because the plan-monitoring, the FRBP 3002.1 notice schedule, the post-petition payment tracking, and the trustee reconciliation run for three to five years. Chapter 7 carries a compressed workload concentrated in the first few months of the case.

Frequently Asked Questions

Which chapter is more common on seller-carry filings?

Chapter 13 is more common on owner-occupied seller carries because the cure-and-maintain mechanism preserves the borrower’s home through the reorganization. Chapter 7 is more common where the borrower has no equity and elects to surrender the property or where the carry is on investor-purpose collateral with no home-preservation goal.

Does the chapter choice affect the lien’s survival?

No on the lien itself. Both chapters preserve the lien against the property under §506 and §524(a) — the lien runs through discharge in rem. The chapter affects the personal-obligation discharge timing and the cure-and-maintain mechanics, not the lien survival.

Can the borrower convert between chapters?

Yes, subject to court approval and conversion rules under §706 (Chapter 7 to other) and §1307 (Chapter 13 to other). A Chapter 13 case that runs into plan-payment difficulty converts to Chapter 7 in many filings; a Chapter 7 case rarely converts to Chapter 13 absent specific eligibility considerations.

This article is educational and does not constitute legal advice. A bankruptcy filing on a seller-carry borrower involves federal bankruptcy statutes under Title 11, federal procedural rules, local court rules, and state-law foreclosure provisions that vary by jurisdiction. Consult qualified legal counsel on the bankruptcy requirements that apply to any specific seller-carry matter.

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