Chapter 7 vs Chapter 13 Bankruptcy
Compare Chapter 7 liquidation bankruptcy with Chapter 13 repayment plan bankruptcy. Learn eligibility requirements, asset treatment, debt discharge timelines, and which option fits your situation.
Overview
Chapter 7 and Chapter 13 are the two most common forms of consumer bankruptcy in the United States, each offering a fundamentally different approach to debt relief. Chapter 7, often called "liquidation bankruptcy," allows debtors to discharge most unsecured debts in exchange for the potential surrender of non-exempt assets. Chapter 13, known as the "wage earner's plan," lets debtors keep their property while repaying debts over a three-to-five-year court-approved plan.
The choice between these two chapters depends on several factors including income level, asset ownership, the types of debt owed, and long-term financial goals. Chapter 7 is typically faster and available to those who pass the means test — a calculation comparing the debtor's income to the state median. Chapter 13 is often chosen by individuals who have regular income, want to protect a home from foreclosure, or have debts that Chapter 7 cannot discharge.
Both forms of bankruptcy trigger an automatic stay that immediately halts most collection actions, lawsuits, wage garnishments, and foreclosure proceedings. However, the long-term consequences differ significantly. A Chapter 7 filing remains on a credit report for ten years, while a Chapter 13 filing stays for seven years from the filing date.
Side-by-Side Comparison
| Factor | Chapter 7 Bankruptcy | Chapter 13 Bankruptcy |
|---|---|---|
| Type | Liquidation — non-exempt assets sold to pay creditors | Reorganization — debts repaid over 3-5 year plan |
| Eligibility | Must pass the means test (income below state median or qualifying expenses) | Must have regular income; secured debts under $2,750,000 |
| Duration | Typically 3-6 months from filing to discharge | 3 to 5 years of plan payments |
| Asset Treatment | Non-exempt assets may be sold by trustee | Debtor keeps all assets while making plan payments |
| Debt Discharge | Most unsecured debts discharged immediately | Remaining unsecured debt discharged after plan completion |
| Mortgage Arrears | Cannot cure mortgage arrears — may lose home | Can cure mortgage arrears through the repayment plan |
| Credit Report Impact | Stays on credit report for 10 years | Stays on credit report for 7 years from filing |
| Monthly Payments | No ongoing payments to creditors | Monthly payments to trustee for 3-5 years |
| Student Loans | Generally not dischargeable (undue hardship exception) | Generally not dischargeable; included in plan payments |
| Tax Debts | Some older income tax debts may be dischargeable | Priority tax debts must be paid in full through plan |
When to Choose Chapter 7 Bankruptcy
- ✓Your income is below the state median or you pass the means test
- ✓You have little or no non-exempt property you could lose
- ✓You need the fastest possible fresh start from overwhelming debt
- ✓You do not have a mortgage you need to save from foreclosure
- ✓Most of your debts are unsecured (credit cards, medical bills)
When to Choose Chapter 13 Bankruptcy
- ✓You have regular income and can commit to a 3-5 year repayment plan
- ✓You are behind on mortgage payments and want to save your home
- ✓You own significant non-exempt property you want to keep
- ✓Your income is too high to qualify for Chapter 7
- ✓You have co-signed debts and want to protect the co-signer
Frequently Asked Questions
Can I switch from Chapter 7 to Chapter 13 or vice versa?▼
Will I lose my car in Chapter 7?▼
How does the means test work for Chapter 7?▼
Do both chapters stop wage garnishment?▼
Can I file bankruptcy more than once?▼
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.