Choosing between Chapter 7 and Chapter 13 bankruptcy is one of the most important financial decisions you'll make. Each chapter offers different benefits and requires different qualifications—understanding the differences helps you select the right path to debt relief.
Chapter 7: Liquidation Bankruptcy
Chapter 7 bankruptcy eliminates most unsecured debts through liquidation. A trustee may sell non-exempt assets to pay creditors, then remaining qualifying debts are discharged—wiped out completely. Most Chapter 7 filers keep all their property because exemptions protect it.
Chapter 7 is fast—typically 4-6 months from filing to discharge. It's best for people with limited income, few assets, and primarily unsecured debt.
Chapter 13: Reorganization Bankruptcy
Chapter 13 bankruptcy involves a 3-5 year repayment plan. You keep all property while paying creditors a portion of what you owe through monthly payments. At plan completion, remaining qualifying debts are discharged.
Chapter 13 takes longer but offers benefits Chapter 7 doesn't—particularly for people with assets to protect or debts Chapter 7 can't resolve.
Income Requirements
Chapter 7 has income limits. You must pass the "means test"—your income must be below your state's median for your household size, or your disposable income must be low enough that paying creditors through Chapter 13 isn't feasible.
Chapter 13 requires regular income sufficient to fund a repayment plan. There's no income ceiling, but debt limits apply: unsecured debts under approximately $465,000 and secured debts under approximately $1.4 million (limits adjust periodically).
What Happens to Your Property
Chapter 7: Non-exempt property may be sold by the trustee. However, most filers have no non-exempt property—exemptions protect necessities like your home (up to certain equity), vehicle, household goods, retirement accounts, and tools of your trade.
Chapter 13: You keep all property. However, your repayment plan must pay unsecured creditors at least as much as they'd receive if your non-exempt assets were liquidated.
Secured Debts
Chapter 7: You must either surrender collateral, reaffirm the debt (keep paying), or redeem (pay current value in lump sum). If you're behind on mortgage or car payments, Chapter 7 won't help you catch up.
Chapter 13: You can cure mortgage and car loan arrears through your repayment plan while keeping the property. This is a major advantage for homeowners facing foreclosure.
Which Debts Are Discharged
Both chapters discharge most unsecured debts—credit cards, medical bills, personal loans. Neither discharges child support, alimony, most student loans, recent taxes, or debts from fraud.
Chapter 13 discharges some debts Chapter 7 doesn't, including certain debts from property settlements in divorce and debts from willful property damage (though recent law changes have limited these advantages).
Time Considerations
Chapter 7: Complete in 4-6 months. You can file again after 8 years.
Chapter 13: Lasts 3-5 years. You can file again immediately after completing a Chapter 13 plan (for Chapter 13) or after 6 years (for Chapter 7).
Impact on Credit
Both chapters impact credit. Chapter 7 stays on credit reports for 10 years; Chapter 13 for 7 years. However, most people see credit improvement within 1-2 years as debts are eliminated and responsible credit use is demonstrated.
When Chapter 7 Is Better
Choose Chapter 7 when: you qualify under the means test, you have little or no non-exempt property, you're not behind on secured debts you want to keep, you want the fastest possible discharge, and your debts are primarily unsecured.
When Chapter 13 Is Better
Choose Chapter 13 when: your income is too high for Chapter 7, you're behind on mortgage or car payments, you have non-exempt property you want to keep, you have debts only Chapter 13 discharges, you have co-signers you want to protect, or you recently received a Chapter 7 discharge.
Getting Legal Help
A bankruptcy attorney can analyze your situation and recommend the chapter that best serves your goals. Many offer free consultations to evaluate your options. Don't assume which chapter is right—professional analysis often reveals unexpected advantages.