Chapter 7 vs Chapter 13 Bankruptcy: Which Is Right?
Bills Bottom Line
Chapter 7 wipes out most unsecured debt in about 4 to 6 months, but you might have to give up some of the things you own. Chapter 13 sets up a 3 to 5 year repayment plan—but lets you keep assets and catch up on a mortgage. Which one fits depends on your income, what you owe, and what you're trying to protect. A bankruptcy attorney can help you figure out where you stand.
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You've done the math. The numbers don't work. And now you're looking at two words that feel like a last resort: Chapter 7 and Chapter 13.
Before you can choose between them, you need to know if you even have a choice. Your income, what you owe, and what you're trying to save—it all factors in, and for some people, one bankruptcy option is far more realistic than the other.
Each could work for someone. Here's how to figure out which one is actually right for you.
How Chapter 7 and Chapter 13 actually differ
They're both types of bankruptcy. But they work differently, cost differently, and protect different things. Here's a side-by-side look at how each type of bankruptcy stacks up.
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Type | Liquidation | Reorganization |
| Who can file | Individuals and business entities | Individuals only (including sole proprietors) |
| Eligibility | Must pass the means test. If you can afford a monthly payment, you won’t qualify. | Unsecured debt under $526,700 / secured debt under $1,580,125 |
| Filing fee | $338 | $313 |
| Attorney fees | Varies by location and case complexity | Varies by location and case complexity |
| Timeline to discharge | 4 to 6 months | 3 to 5 years (discharge after completing repayment plan) |
| What happens to property | Might have to give up nonexempt property | You keep property; pay value of nonexempt assets through plan |
| Unsecured debt | Could be discharged (forgiven) | Could be partially or fully repaid |
| Credit report | Up to 10 years from filing date | Up to 7 years from filing date |
| Co-signer protection | No | Yes, on consumer debts |
What neither chapter can do
Whichever path you take, some debts simply can't be discharged through regular consumer bankruptcy. Filing Chapter 7 or Chapter 13 won't discharge:
- Child support and alimony
- Most tax debts
- Criminal restitution
- Most government fines or penalties
- Debts from DUI-related injuries
- Most student loans
Outside of these, the majority of unsecured debt is on the table as long as they’re included in your filing documents.
When Chapter 7 is the right move
Chapter 7 is the faster path. Your unsecured debt could be wiped out in months—without you paying it back. You have to be eligible to get that option, and Chapter 7 doesn't resolve every type of debt.
Eligibility: who can use Chapter 7
Whether Chapter 7 is available to you comes down to one thing: the means test. This is a calculation that compares your income to your state's median income.
If your income is above the threshold, you may not be eligible for Chapter 7. Your expenses could be the deciding factor at that point. A Chapter 7 bankruptcy attorney can run the numbers with you.
Get out from under unsecured debt
If you pass the means test, Chapter 7 could discharge most unsecured debts:
- Credit cards
- Store cards
- Medical bills
- Personal loans
- Past-due utility bills
- Most civil court judgments
For a lot of people, that's the bulk of what's burying them. That could be gone in 4 to 6 months.
Your debt is only half the equation when considering your bankruptcy options, though. It's not called liquidation bankruptcy for nothing—you may have more assets on the line than you realize.
What the trustee could actually take
When you file Chapter 7, a court-appointed trustee reviews everything you own, not just your house and car. Their job is to identify assets that aren't protected by a bankruptcy exemption and sell them to pay your creditors.
Most Chapter 7 filers come through with their essential property intact. Federal and state exemptions cover a primary home up to certain equity limits, a vehicle up to a set value, retirement accounts, and basic household goods. But exemptions have dollar caps, and anything above those caps could be fair game.
The assets that catch people off guard:
- Jewelry and watches above the exemption threshold
- A second vehicle, even a beater
- Collections: coins, art, instruments, sports memorabilia
- Family heirlooms with significant market value
- Investment or brokerage accounts
- Tax refunds you're owed at the time of filing
The fact that something has sentimental value doesn't protect it. The trustee works from market value, not meaning.
If you have assets in any of these categories, that doesn't mean Chapter 7 is off the table. It means you need to know what's protected in your state before you file. Exemption limits vary significantly, and an attorney can tell you exactly what's at risk.
When Chapter 13 is worth the commitment
Chapter 13 has a reputation as the fallback: what you're stuck with when your income is too high for Chapter 7. That reputation undersells it. For the right situation, Chapter 13 does things Chapter 7 simply can't.
Eligibility: who can use Chapter 13
Chapter 13 doesn't have an income ceiling—it has a debt ceiling. Your unsecured debt must be under $526,700 and secured debt under $1,580,125 (as of April 2025). You also need regular income to fund a repayment plan.
If you meet those conditions, you may be eligible for Chapter 13 bankruptcy. Making too much for Chapter 7 doesn't mean you're out of bankruptcy options. It means this is your chapter.
Save your home from foreclosure
Chapter 13 may be able to stop a foreclosure and give you time to catch up on what you owe. Chapter 7 can only pause the process.
If the foreclosure sale has already been completed before you file, Chapter 13 can't reverse it. However, when the foreclosure is still in process, the automatic stay can stop foreclosure proceedings as soon as you file.
You must keep up with regular mortgage payments that come due after you file, and missing those could still result in losing your home. That's a real constraint to keep in mind.
For someone who is behind on their mortgage and wants to keep their home, Chapter 13 could be the only path that gives you a chance to bring your mortgage current.
Catch up on a car loan
Chapter 13 could let you catch up on an auto loan if you're behind on payments.
In some cases, Chapter 13 could also allow you to reduce the amount you owe on a vehicle to its current market value (sometimes called a cramdown), but this depends on when you purchased the vehicle and other eligibility conditions.
Beyond that, Chapter 13 can restructure your auto loan. It could extend the loan term and may lower the interest rate, which could reduce what you pay each month.
Protect a co-signer
Co-signers agree to share responsibility for a debt with you. Under Chapter 7, creditors could pursue your co-signer for repayment even if you’ve filed bankruptcy.
Chapter 13 has a provision Chapter 7 doesn't: the co-debtor stay. While your repayment plan is active, creditors are generally prohibited from pursuing your co-signer for enrolled consumer debts. That protection ends if the case is dismissed or converted, but for the duration of your plan, your co-signer has some protection, too.
Bills Action Plan
- Check your eligibility first. Run the Chapter 7 means test to see if that option is open to you. If your income is above your state's median, you may need to focus on Chapter 13. The U.S. Trustee Program offers a means test calculator.
- Consider your goals. Write down your assets (home equity, vehicle, retirement accounts) and your debt types (secured vs. unsecured). Decide which chapter gives you more of what you need and what each one could cost you.
- Talk to a bankruptcy attorney before filing. Most offer free or low-cost consultations. Bring your income documents, a list of debts, and your asset list. The right chapter depends on details you and your attorney can evaluate together. Many provide free initial consultations.
Key Terms
Means test: The two-part calculation that determines whether a filer is eligible for Chapter 7 bankruptcy. Part one compares household income to the state median. If you're over the median, part two looks at your expenses. You may still pass if your disposable income isn't high enough to fund a Chapter 13 repayment plan.
Discharge: The court order that eliminates a debtor's personal liability for certain debts. Once issued, creditors can no longer pursue collection on discharged debts.
Automatic stay: The legal protection that stops most collection actions when a bankruptcy petition is filed, including lawsuits, wage garnishments, and foreclosure proceedings.
Nonexempt assets: Property a bankruptcy trustee could sell to pay creditors. What counts as nonexempt depends on federal and state exemption laws.
Repayment plan: The court-approved payment schedule in a Chapter 13 case. Typically runs 3 to 5 years and must be confirmed by the court before it takes effect.
Cramdown: A Chapter 13 provision that may allow a filer to reduce the amount owed on certain secured debts to the collateral's current market value. Eligibility conditions apply.
Co-debtor stay: A Chapter 13 protection that shields co-signers on consumer debts from creditor collection while the repayment plan is active. Does not apply in Chapter 7.
This article is for general education. We can't advise you on whether to file for bankruptcy protection or which chapter is right for you. Consult a bankruptcy attorney for advice specific to your situation.
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Can you switch from Chapter 13 to Chapter 7?
Yes, conversion from Chapter 13 to Chapter 7 is possible, and it's more common than most people realize. It typically happens when income drops or circumstances change in a way that makes plan payments impossible.
Keep in mind that the means test still applies at conversion, and if you received a Chapter 7 discharge within the past 8 years, conversion wouldn't result in a new discharge. There's also a conversion fee.
What happens if you can't keep up with Chapter 13 payments?
A few things could happen, and none of them are immediate. The most common outcome is plan modification: If your circumstances have genuinely changed, you can ask the court to revise your payment schedule.
If modification isn't workable, the court may dismiss the case, which removes bankruptcy protection and means creditors could resume collection efforts. Conversion to Chapter 7 may also be an option depending on your income and the timing. An attorney can help you understand your options before the court acts.
Can you file Chapter 7 if you've filed for bankruptcy before?
Yes, you can file. But whether you can receive a discharge depends on timing. If you received a Chapter 7 discharge within the past 8 years, you could file again but you wouldn't be eligible for a new Chapter 7 discharge.
There's a separate rule for Chapter 13 discharge timing: If you received a Chapter 13 discharge within the past 4 years, you wouldn't be eligible for a Chapter 7 discharge either. Filing and receiving a discharge are two different things. An attorney can tell you exactly where you stand based on your prior case.