Chapter 7 vs Chapter 13 Bankruptcy

A complete comparison to help you choose the right bankruptcy option

Choosing between Chapter 7 and Chapter 13 bankruptcy is one of the most important decisions you'll make when filing for bankruptcy. Both provide debt relief and a fresh financial start, but they work very differently. This comprehensive guide compares every aspect of Chapter 7 and Chapter 13 to help you determine which option is best for your situation.

Quick Comparison Overview

Feature	Chapter 7	Chapter 13
Also Known As	Liquidation Bankruptcy	Wage Earner's Plan / Reorganization
Duration	3-4 months	3-5 years
Debt Treatment	Debts discharged (eliminated)	Debts repaid through payment plan
Assets	Non-exempt assets may be sold	Keep all assets
Income Requirement	Must pass means test	Must have regular income
Monthly Payments	None (after filing)	Yes (to trustee for 3-5 years)
Foreclosure	Temporary delay only	Can stop and catch up on arrears
Filing Fee	$338	$313
Attorney Fees	$1,000-$3,000	$2,500-$6,000
Credit Report Impact	10 years	7 years

Detailed Side-by-Side Comparison

1. Eligibility Requirements

Chapter 7 Eligibility

Means Test: Must pass based on income and expenses

Income below state median, OR
Disposable income below threshold after allowable expenses
No income limits for eligibility

No Debt Limits

Previous Bankruptcies:

8 years since last Chapter 7 discharge
6 years since last Chapter 13 discharge

Chapter 13 Eligibility

Regular Income: Must have reliable income source

Wages, self-employment, pension, Social Security, etc.
Income must cover living expenses + plan payment
No means test required

Debt Limits (2026):

Secured debts: Under $1,395,875
Unsecured debts: Under $465,275

Previous Bankruptcies:

2 years since last Chapter 13 discharge
4 years since last Chapter 7 discharge

2. How Debts Are Handled

Chapter 7: Discharge

Most unsecured debts are completely eliminated within 3-4 months:

Credit cards: 100% discharged
Medical bills: 100% discharged
Personal loans: 100% discharged
Collection accounts: 100% discharged
Utility bills: 100% discharged

You pay nothing to unsecured creditors (unless assets are sold).

Chapter 13: Repayment

Debts repaid through 3-5 year plan based on disposable income:

Priority debts: Must pay 100% (taxes, child support)
Secured arrears: Must pay 100% (catch up on mortgage/car)
Unsecured debts: Pay percentage based on disposable income (0-100%)

Remaining unpaid unsecured debts discharged after plan completion.

3. What Happens to Your Property

Chapter 7: Liquidation

Exempt Property: You keep (protected by exemptions)

Home equity (up to exemption limit)
Vehicle (up to exemption limit)
Household goods
Retirement accounts
Tools of trade

Non-Exempt Property: Trustee may sell

Excess home equity
Excess vehicle equity
Valuable collections
Investment property
Cash/bank accounts over limit

Note: 90%+ of Chapter 7 cases are "no-asset" cases where all property is exempt.

Chapter 13: Keep Everything

You keep all property while making plan payments:

Home (even with excess equity)
Vehicles (even with excess equity)
All personal property
Investment property
Valuable items

Catch: Value of non-exempt property affects plan payment amount

You must pay unsecured creditors at least the value of your non-exempt property over the plan period.

4. Saving Your Home from Foreclosure

Chapter 7: Limited Help

Chapter 7 provides only temporary foreclosure relief:

Automatic stay delays foreclosure 3-4 months
Cannot catch up on missed payments through bankruptcy
Must be current on mortgage or willing to surrender home
Lender can get stay lifted to proceed with foreclosure

Best if: Current on mortgage or surrendering home

Chapter 13: Save Your Home

Chapter 13 is designed to stop foreclosure and save homes:

Immediate foreclosure stop
Catch up on missed payments over 3-5 years
Continue making current monthly payments directly to lender
Can strip second mortgages if home is underwater

Best if: Behind on mortgage but want to keep home

5. Timeline Comparison

Chapter 7: 3-4 Months

Day 1: File petition, automatic stay begins

Day 21-40: 341 meeting of creditors

Day 60: Deadline for creditor objections

Day 90-120: Discharge issued, case closed

Total time: 3-4 months to fresh start

Chapter 13: 3-5 Years

Day 1: File petition, automatic stay begins

Day 30: First plan payment due

Day 21-50: 341 meeting of creditors

Day 90-120: Plan confirmation hearing

Years 1-5: Make monthly payments

End of plan: Discharge issued

Total time: 36-60 months to completion

6. Cost Comparison

Cost Item	Chapter 7	Chapter 13
Court Filing Fee	$338	$313
Attorney Fees	$1,000 - $3,000	$2,500 - $6,000
Credit Counseling	$10 - $50	$10 - $50
Financial Management Course	$10 - $50	$10 - $50
Trustee Fees	None (unless assets sold)	3-10% of each payment
Typical Total (Upfront)	$1,400 - $3,500	$1,500 - $3,000
Total Over Life of Case	$1,400 - $3,500	$5,000 - $50,000+ (includes plan payments)

Note: Chapter 13 attorney fees can often be paid through the plan, reducing upfront costs. However, total payments over 3-5 years can be substantial.

7. Impact on Credit

Chapter 7 Credit Impact

Credit Report: 10 years from filing date

Credit Score Drop: 130-200 points initially

Recovery Timeline:

Year 1: Difficult to get credit
Years 2-3: Subprime credit available
Years 4-5: Improving credit options
Years 7-10: Gradual normalization

Chapter 13 Credit Impact

Credit Report: 7 years from filing date

Credit Score Drop: 130-200 points initially

Recovery Timeline:

During plan: Limited credit access
After discharge: Easier than Chapter 7
Shows repayment responsibility
Shorter credit report period (3 years less)

Which Chapter Should You Choose?

Choose Chapter 7 If:

You pass the means test (income below state median or limited disposable income)
You want the fastest debt relief possible (3-4 months)
You have mostly unsecured debt (credit cards, medical bills)
All your property is exempt (protected)
You're current on mortgage and car payments (or willing to surrender)
You don't have significant non-dischargeable debts (taxes, child support)
You want to minimize attorney fees and costs
You're not facing immediate foreclosure

Choose Chapter 13 If:

You don't qualify for Chapter 7 (failed means test)
You're behind on mortgage or car payments and want to catch up
You're facing foreclosure and want to save your home
You have non-exempt assets you want to protect
You have significant tax debt or child support arrears
You want to strip a second mortgage (if home is underwater)
You have co-signers you want to protect
You filed Chapter 7 recently and don't qualify again yet
You have regular, reliable income to fund a payment plan

Common Scenarios and Best Choice

Your Situation	Recommended Chapter	Why
Overwhelming credit card debt, current on house/car	Chapter 7	Fast discharge, keep assets if current
Behind on mortgage, want to keep home	Chapter 13	Only option to catch up on arrears
High income, failed means test	Chapter 13	No income limit for Chapter 13
Expensive car with excess equity	Chapter 13	Keep car, possibly reduce loan amount
Recent tax debt	Chapter 13	Pay over 3-5 years interest-free
Unemployed or irregular income	Chapter 7	No payment plan required
Home underwater with second mortgage	Chapter 13	Can strip second mortgage
Renter with credit card/medical debt	Chapter 7	Fast, affordable, complete discharge

Can You Convert Between Chapters?

Chapter 7 to Chapter 13: Yes, you can convert at any time before discharge if circumstances change or you discover Chapter 13 better protects assets.

Chapter 13 to Chapter 7: Yes, if you can no longer afford plan payments or if you now qualify for Chapter 7. However, you must meet Chapter 7 eligibility requirements.

Frequently Asked Questions

Can I file Chapter 7 even if I qualify for Chapter 13?

Yes, if you pass the means test. Qualifying for both chapters means you choose based on which better fits your goals (saving home, protecting assets, etc.).

What if I'm not sure which chapter to file?

Consult a bankruptcy attorney. They can analyze your specific situation and recommend the chapter that provides the most benefit. Many offer free consultations.

Can I keep my tax refund in Chapter 7 or Chapter 13?

Chapter 7: Tax refunds may be considered assets and seized by the trustee if not protected by exemptions. Chapter 13: You typically must turn over tax refunds to the trustee during your plan.

Which chapter is better for my credit?

Chapter 13 stays on your credit report for 7 years vs. 10 years for Chapter 7, and shows you repaid debts. However, both have similar initial credit score impacts. The "better" option depends on your individual circumstances.

Ready to Take the Next Step?

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