The difference between Chapter 7 and Chapter 13 bankruptcy comes down to liquidation versus repayment. Chapter 7 erases most unsecured debt in about four months by selling off any property you can’t protect with exemptions. Chapter 13 lets you keep everything you own and instead commits you to a court-supervised repayment plan that runs three to five years. Which one you can use, and which one you should use, depends on your income, what you own, and the kind of debt weighing on you.
The Two Chapters at a Glance
Chapter 7 is a liquidation. A court-appointed trustee looks at everything you own, sets aside what state or federal law lets you keep (exempt property), and sells the rest to pay creditors. Whatever unsecured debt remains gets discharged, meaning you’re no longer legally obligated to pay it. In most individual Chapter 7 cases, there’s actually nothing for the trustee to sell. The debtor’s property is either exempt or already encumbered by liens, so creditors receive nothing and the case is reported as a “no-asset” case.1United States Courts. Chapter 7 – Bankruptcy Basics The discharge usually arrives about four months after filing.2United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
Chapter 13 is a reorganization. You keep your property. In exchange, you propose a repayment plan that the bankruptcy court must approve, then make monthly payments to a trustee who distributes the money to your creditors. Plans run three years if your income is below your state’s median, and five years if it’s above. Anything unpaid at the end of the plan is discharged, assuming you’ve met every requirement.3United States Courts. Chapter 13 – Bankruptcy Basics
Who Qualifies for Each
Chapter 7 and the Means Test
Chapter 7 isn’t open to everyone. You have to pass a means test that compares your household income to the median income in your state for a family of your size.4United States Department of Justice. Means Testing Fall below the median and you qualify automatically.
Above the median, the test keeps going. You subtract certain allowed monthly expenses from your income and multiply what’s left by 60. If that figure is high enough, the court presumes you could repay creditors and that filing Chapter 7 would be abusive, pushing you toward Chapter 13 instead.1United States Courts. Chapter 7 – Bankruptcy Basics You can try to rebut that presumption with documented special circumstances, like unusually high medical expenses or a recent job loss.
Chapter 13 and Its Debt Ceiling
Chapter 13 doesn’t use the means test, but it caps how much debt you can have. As of April 2025, your unsecured debts must be below $526,700 and your secured debts below $1,580,125 to be eligible.5Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor Those limits adjust every three years. Blow past either one and Chapter 13 is off the table; you’d be looking at Chapter 11. You also need regular income the court can count on to fund the plan.
What Happens to Your Property
This is where the two chapters feel most different. Chapter 7 puts non-exempt property on the auction block. Chapter 13 lets you keep everything, but you have to pay for the privilege.
Every state has its own exemption laws covering home equity, vehicles, retirement accounts, tools of the trade, and personal belongings. Some states let you pick between the state list and a federal set; others require you to use the state list. The variation is dramatic. Homestead protection ranges from a modest fixed dollar amount in some states to unlimited equity in others. A local bankruptcy attorney will know which exemptions apply to you, and that answer directly determines whether Chapter 7 risks any of your property.
Exemptions matter in Chapter 13 too, even though you keep your assets. The plan must pay your unsecured creditors at least as much as they would have received in a hypothetical Chapter 7. If you’d have $20,000 in non-exempt equity under Chapter 7, your Chapter 13 plan has to funnel at least that amount to unsecured creditors over its life.
Catching Up on a Mortgage or Car Loan
The single biggest reason people choose Chapter 13 over Chapter 7 is to save a house or a car they’ve fallen behind on. Chapter 13 lets you roll the overdue amount into your plan and cure the default gradually, as long as you stay current on new payments going forward.3United States Courts. Chapter 13 – Bankruptcy Basics Chapter 7 offers no equivalent mechanism. If you’re behind on your mortgage when you file Chapter 7, the lender can resume foreclosure once the bankruptcy ends.
The automatic stay (the legal shield that stops collections, lawsuits, garnishments, foreclosures, and repossessions the moment you file) applies in both chapters.6Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay But the protection only lasts as long as the case. In Chapter 7, that’s a few months. In Chapter 13, it covers the full three to five years, which is often decisive for someone trying to outrun a foreclosure.
Protection for Co-signers
Chapter 13 blocks creditors from pursuing anyone who co-signed a consumer debt with you, at least while your case is active.7Office of the Law Revision Counsel. 11 US Code 1301 – Stay of Action Against Codebtor Chapter 7 doesn’t. If a parent or friend co-signed a loan with you, Chapter 13 shields them; Chapter 7 leaves them exposed.
Debts Neither Chapter Will Erase
Both chapters leave certain categories of debt intact. Filing won’t help you with any of these:
- Child support and alimony are never dischargeable.
- Student loans survive unless you can prove repaying them would cause “undue hardship,” a standard that’s notoriously hard to meet.
- Recent tax debts generally survive. Older income tax debt may be dischargeable if the returns were filed on time and the debt is more than three years old.8Internal Revenue Service. Declaring Bankruptcy
- Debts you obtained through fraud or misrepresentation stay with you.
- Debts for death or personal injury you caused by driving intoxicated are not dischargeable.9Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
Chapter 13 does carry a slightly broader discharge in two narrow places. Debts for willful and malicious damage to property (not injury to a person) and certain debts from divorce property settlements can be wiped out through a completed Chapter 13 plan but not through Chapter 7. If you’re carrying either kind of obligation, that distinction can tip the decision.
Timeline, Cost, and Credit Impact
Chapter 7 moves fast. From filing to discharge is roughly four months. Chapter 13 is a long haul: three years at a minimum, five if your income is above the state median.
The federal filing fee is $338 for Chapter 7 and $313 for Chapter 13.10United States Courts. Bankruptcy Court Miscellaneous Fee Schedule Chapter 13 filers can pay the fee in installments through the plan. Attorney fees are the larger expense and the gap is wider there. A straightforward Chapter 7 typically runs around $1,000 to $2,000. Chapter 13 attorney fees commonly land in the $2,500 to $4,000 range because the case lasts years and involves plan drafting, confirmation hearings, and sometimes modifications; those fees can usually be rolled into the repayment plan rather than paid up front.
Federal law lets a bankruptcy stay on your credit report for up to 10 years from the order for relief, with no statutory distinction between the two chapters.11Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports In practice, the major credit bureaus voluntarily remove a completed Chapter 13 after seven years while Chapter 7 stays the full ten. That’s bureau policy, not a legal guarantee. Either way, the hit isn’t permanent, and if your credit was already battered by missed payments and collections before you filed, the additional drop from the bankruptcy itself can be smaller than you’d expect.
One other thing to know about Chapter 13 before you commit: roughly half of plans are never completed. People fall behind on payments or their circumstances change, and the case gets dismissed or converted to Chapter 7. A multi-year commitment is hard to sustain, and realistic budgeting matters more than almost anything else going in.
Which One Fits Your Situation
Chapter 7 tends to be the better fit when your income is low enough to pass the means test, you don’t have significant non-exempt property at risk, and your debts are mostly unsecured, like credit cards and medical bills. The process is quick and the result is a clean break.
Chapter 13 makes more sense when you have steady income but are behind on a mortgage or car loan you want to keep, when your income disqualifies you from Chapter 7, when you have non-exempt assets you’d rather protect by paying into a plan, or when you’re carrying a specific kind of debt (like a property damage judgment or a divorce property settlement) that Chapter 7 won’t discharge but Chapter 13 will.
The worst outcome is filing the wrong chapter: losing property you could have kept, or signing up for a five-year plan you can’t finish. State exemption laws, local trustee practices, and your own cash-flow reality all shape which chapter actually works, so this is one of those decisions worth taking to a bankruptcy attorney in your area before you file.