The choice between Chapter 7 and Chapter 13 bankruptcy comes down to three things: whether your income qualifies you for Chapter 7, whether you own property that exceeds the available exemptions, and whether you’re behind on a mortgage or car loan you want to keep. Chapter 7 erases most unsecured debt in about four to six months but can require giving up non-exempt assets. Chapter 13 lets you keep everything in exchange for a three-to-five-year repayment plan funded by your income.
What Chapter 7 Does
Chapter 7 is liquidation bankruptcy. A court-appointed trustee reviews your assets, sells anything not protected by an exemption, and distributes the proceeds to creditors. Whatever qualifying debt remains gets wiped out.1United States Courts. Chapter 7 – Bankruptcy Basics
Despite the word “liquidation,” most Chapter 7 filers lose no property at all. Federal law protects specific categories of assets up to set dollar amounts, and many states offer their own exemption lists, which may be more generous. Under the federal exemptions effective April 1, 2025, you can protect up to $31,575 in home equity, $5,025 in vehicle equity, and $16,850 in total household goods and personal property.2Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases Retirement accounts like 401(k)s and IRAs receive broad protection. Property that doesn’t fit within any exemption — a second home, expensive collectibles, significant cash savings — can be sold by the trustee.
Not everyone qualifies. You must pass a means test, which compares your household income over the past six months to the median income for a similarly sized household in your state. If your income falls below the median, you qualify. If it’s above, the test looks at your disposable income after allowed living expenses. Filers with too much disposable income get steered toward Chapter 13.3United States Department of Justice. Means Testing
The debts Chapter 7 wipes out are the unsecured ones: credit card balances, medical bills, personal loans, past-due utility bills. The discharge typically arrives about 60 days after the creditors’ meeting, making the entire process roughly four to six months from filing to finish.
What Chapter 13 Does
Chapter 13 works on a different principle. Nothing is liquidated. Instead, you propose a repayment plan that uses your future income to pay back some or all of your debts over time. You keep all your property, and you commit your disposable income to the plan for its full duration.4United States Courts. Chapter 13 – Bankruptcy Basics
If your income is below your state’s median, the plan lasts three years. If it’s above the median, the plan generally runs five years. Five years is the maximum.
Chapter 13 has debt ceilings. As of April 1, 2025, you must owe less than $1,580,125 in secured debt and less than $526,700 in unsecured debt to qualify.5Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
The strongest reason to file Chapter 13 is catching up on secured debt. If you’re behind on your mortgage, you can fold the past-due payments into the plan and cure the arrears over three to five years while continuing to make regular mortgage payments going forward. The same approach works for car loans. Filing also stops a foreclosure through the automatic stay, giving you time to get current.
Your plan must pay unsecured creditors at least what they would have received in a Chapter 7 case, meaning the value of your non-exempt property. If you have no non-exempt property, your unsecured creditors might receive very little. Any remaining qualifying unsecured debt gets discharged when you complete the plan.
How to Choose Between Them
Four factors usually decide it.
Income and Eligibility
If your household income falls below your state’s median, you almost certainly qualify for Chapter 7 and can pick either chapter. If you’re above the median and can’t pass the means test, Chapter 13 is your only path, and you’ll need enough regular income to fund a plan.3United States Department of Justice. Means Testing
How Much Property You Want to Protect
If everything you own fits within the available exemptions, Chapter 7 lets you keep it all and discharge your debts in a few months. But if you own a home with substantial equity, a second vehicle, or other assets that exceed exemption limits, Chapter 13 lets you keep all of it as long as your plan pays creditors at least the value of the non-exempt portion. This is the single biggest reason people with above-median income prefer Chapter 13 even when they might squeeze through the means test.
The Kind of Debt You Owe
Chapter 7 is strongest against unsecured debt like credit cards and medical bills. It won’t help with mortgage arrears or car loan delinquencies, because those creditors hold collateral. If you stop paying, they take the property. Chapter 13 gives you a structured way to cure missed payments while keeping the house or car. It can also wrap priority debts like recent income taxes and domestic support arrears into the plan so you pay them down over time instead of all at once.
Speed vs. Control
Chapter 7 takes four to six months and requires no ongoing payments. Chapter 13 takes three to five years but gives you more control over which debts get paid and which assets you keep. Filers who mainly want credit card and medical debt gone, and who have little property at risk, usually prefer Chapter 7. Filers who are behind on a mortgage or car loan, or who hold significant non-exempt assets, usually prefer Chapter 13.
Debts Neither Chapter Erases
Some obligations survive regardless of which chapter you file:
- Child support and alimony.
- Most recent income taxes and other tax debts, though Chapter 13 can spread the payments over the life of the plan.
- Student loans, unless you prove undue hardship through a separate court proceeding.
- Criminal fines and restitution.
- Debts for personal injury or death caused by driving while intoxicated.
- Debts you fail to list in your bankruptcy paperwork.
Student loans deserve a specific caution. Discharging them in bankruptcy is possible but difficult. You must file a separate lawsuit within your bankruptcy case and show that repayment would prevent you from maintaining a minimal standard of living, that your situation is likely to persist, and that you’ve made reasonable efforts to repay. The bar is high, and most student loan debt survives both chapters.
The Automatic Stay
The moment you file either chapter, federal law immediately halts most collection activity. Creditors must stop calling, lawsuits pause, wage garnishments end, and foreclosure proceedings freeze.6Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
The stay has limits. It doesn’t stop criminal proceedings, most family law actions like divorce or child custody hearings, or tax audits. And if you’ve had a prior bankruptcy case dismissed within the past year, the stay may last only 30 days or not take effect at all, depending on how many recent cases you’ve filed.
If You’ve Filed Bankruptcy Before
Prior filings can block you from receiving a discharge in a new case. The waiting period depends on which chapter you filed before and which you’re filing now:
- Chapter 7 followed by Chapter 7: eight years between filing dates.
- Chapter 7 followed by Chapter 13: four years between filing dates.
- Chapter 13 followed by Chapter 13: two years between filing dates.
- Chapter 13 followed by Chapter 7: six years between filing dates, which drops to zero if you paid 100% of claims in the prior Chapter 13, or 70% of claims with a good-faith plan.
These periods run from the filing date of the earlier case, not the discharge date. Getting the timing wrong means you could go through the entire process and be denied a discharge at the end.
What Each Chapter Does to Your Credit
A bankruptcy filing stays on your credit report for up to 10 years from the date the case is filed.7Consumer Financial Protection Bureau. How Long Does a Bankruptcy Appear on Credit Reports That reporting period is the same whether you file Chapter 7 or Chapter 13. For people already behind on payments and in collections, the damage to their credit score has often already happened. Bankruptcy stops the bleeding and gives a defined starting point to rebuild, and most filers see their scores begin recovering within one to two years as they establish a clean payment history on new accounts.