How Chapter 7 and Chapter 13 bankruptcy differ

Chapter 7 bankruptcy wipes out most unsecured debts — credit cards, medical bills, personal loans — but you may lose non-exempt assets like a second car or investment accounts. Chapter 13 bankruptcy lets you keep your assets and instead reorganizes your debts into a repayment plan you follow for three to five years, paying back some or all of what you owe.

The choice between them depends on your income, how much debt you have, what you own, and whether you want to keep specific property. Chapter 7 is faster — usually finished in three to six months — but Chapter 13 protects assets and stops foreclosure or repossession when ready. Neither option is "better"; they solve different problems.

Key Takeaways

  • Chapter 7 erases most unsecured debts but may require you to sell non-exempt assets, while Chapter 13 protects your assets by reorganizing debts into a court-approved repayment plan.
  • Chapter 7 requires passing the means test, which compares your income to your state's median; Chapter 13 has no means test but your repayment plan must show you can pay something back.
  • Chapter 7 takes three to six months; Chapter 13 takes three to five years, during which you make monthly payments to a court-appointed trustee.
  • Chapter 13 stops foreclosure and repossession when ready and lets you catch up on missed payments over time, while Chapter 7 does not offer this protection.
  • Both require filing with the federal bankruptcy court in your district and completing credit counseling before and after filing.

What gets erased or reorganized in each chapter

Chapter 7 discharges — legally erases — most unsecured debts. This includes credit card balances, medical bills, personal loans, payday loans, and utility arrears. It does not erase child support, spousal support, most student loans, recent tax debts, or fines. Secured debts like mortgages and car loans remain; if you stop paying, the lender can foreclose or repossess.

Chapter 13 does not erase debts. Instead, a bankruptcy judge approves a repayment plan that reorganizes what you owe. You pay a portion of unsecured debts over three to five years; the rest is discharged at the end. Secured debts stay in place, but you can catch up on missed payments through the plan. If you fall behind on child support or taxes, the plan can include those arrears too.

The debts that cannot be discharged in either chapter are the same: child support, spousal support, most student loans, criminal fines, and recent tax debt. If these make up most of what you owe, neither chapter will erase them, though Chapter 13 can reorganize them into a manageable payment schedule.

Income limits and the means test

Chapter 7 has an income threshold called the means test. If your household income is below your state's median income for your family size, you pass automatically and can file. If your income is above the median, the means test subtracts allowed living expenses and debt payments from your income; if anything is left over, you may not may have access to for Chapter 7 and must file Chapter 13 instead.

The median income varies by state and family size. For example, in 2024, the median household income for a family of four in California is different from a family of four in Mississippi. You can find your state's current median on the U.S. Courts website or through a bankruptcy attorney. The means test is recalculated each year, so the threshold changes.

Chapter 13 has no means test. Anyone can file, regardless of income. However, your repayment plan must show that you can afford to pay something back each month. If your income is very low and expenses are very high, the court may dismiss your case if the plan is not feasible.

What happens to your property and assets

In Chapter 7, a court-appointed trustee can sell your non-exempt assets to pay creditors. Exempt assets — those protected by law — vary by state but typically include your primary home (up to a certain equity limit), one vehicle (up to a certain value), household goods, tools of your trade, and retirement accounts like 401(k)s and IRAs. If you own a second car, investment accounts, or a vacation home, the trustee may sell those.

In Chapter 13, you keep all your assets. The trustee does not sell anything. Instead, you commit to a repayment plan, and creditors are paid from your future income, not your current property. This is why Chapter 13 is often chosen by people who own a home with equity, have a second vehicle, or hold investments they want to protect.

Both chapters protect retirement accounts differently. Traditional 401(k)s and IRAs are generally protected in both Chapter 7 and Chapter 13, though the protection limits vary by account type and state law. Roth IRAs and other retirement savings have their own rules. A bankruptcy attorney can explain what you would keep in your specific situation.

How long each chapter takes and what you pay

Chapter 7 typically closes in three to six months. You file paperwork, attend a creditor meeting (usually brief and routine), and if the trustee finds no assets to sell, your debts are discharged. You pay court filing fees (currently around $300 to $400) and attorney fees, which vary by location and complexity but often range from $1,000 to $2,500 for a straightforward case.

Chapter 13 lasts three to five years. The court sets your repayment plan based on your income, expenses, and debts. You make one monthly payment to the trustee, who distributes it to creditors according to the plan. Court filing fees are similar to Chapter 7, but attorney fees are often higher because the case is more complex and longer. Many bankruptcy attorneys charge a flat fee for Chapter 13 that covers the entire three to five years.

In both chapters, you must complete credit counseling from an approved agency before filing and a financial management course after filing. These courses cost $50 to $150 each and are often offered online. The court will not discharge your debts until you provide proof of completion.

Stopping foreclosure and repossession

Filing Chapter 13 triggers an automatic stay — a court order that when ready stops foreclosure, repossession, wage garnishment, and collection calls. This gives you time to catch up on missed mortgage or car payments through your repayment plan. If you are three months behind on your mortgage, Chapter 13 lets you spread those arrears over your three to five year plan instead of paying them all at once.

Chapter 7 also triggers an automatic stay, but it does not help you keep a home or car you cannot afford. The stay pauses collection briefly, but if you have a mortgage or car loan and cannot pay going forward, the lender can ask the court to lift the stay and proceed with foreclosure or repossession. Chapter 7 is useful if you want to surrender the property and erase the debt, but not if you want to keep it.

If you are facing imminent foreclosure or repossession and want to keep the property, Chapter 13 is the tool designed for that. Chapter 7 works better if you are ready to let the property go or if you have no secured debts at all.

How filing affects your credit and future borrowing

Both Chapter 7 and Chapter 13 appear on your credit report. Chapter 7 stays for ten years; Chapter 13 stays for seven years. During that time, your credit score will be lower, and some lenders will decline you. However, both chapters also stop the damage from unpaid debts, missed payments, and collection accounts, which would otherwise continue to hurt your score.

After Chapter 7 discharge, you have no remaining debts (except those that cannot be discharged), so rebuilding credit can be faster. After Chapter 13, you have completed a court-approved repayment plan, which some lenders view more favorably than a Chapter 7 discharge. Some people report being able to get a mortgage or car loan sooner after Chapter 13 than after Chapter 7, though this varies by lender.

You can file Chapter 7 again after eight years have passed since your previous Chapter 7 discharge. You can file Chapter 13 after two years have passed since a previous Chapter 7 discharge, or after three years have passed since a previous Chapter 13 discharge. These waiting periods are set by federal law and cannot be waived.

Frequently Asked Questions

Can I choose between Chapter 7 and Chapter 13, or does the court decide?

You choose which chapter to file, but the court can dismiss your case if you do not meet the requirements. If your income is above your state's median and the means test shows you have money left over after expenses, the court may require you to file Chapter 13 instead of Chapter 7. If you file Chapter 13, the court must confirm your repayment plan is feasible.

Will I lose my house if I file Chapter 7?

Not automatically. Your primary home is usually protected up to a certain equity limit set by your state. If you have little or no equity, or if your equity is within the exemption limit, you keep the house. If you have significant equity above the exemption, the trustee may sell it. If you are behind on your mortgage, Chapter 7 does not stop foreclosure; Chapter 13 does.

What if I cannot afford the Chapter 13 repayment plan?

If your circumstances change during the plan — you lose income or face a major expense — you can ask the court to modify the plan. If modification is not enough, you can ask to convert to Chapter 7 or dismiss the case. The court will not force you to pay more than you can afford, but you must show the hardship is real and not temporary.

Do I have to tell my employer I filed bankruptcy?

No. Bankruptcy is private, and employers cannot legally fire you for filing. However, if the court orders wage garnishment as part of a Chapter 13 plan, your employer will be notified to withhold a portion of your paycheck. This is a court order, not a choice, and your employer must comply.

Can student loans be discharged in bankruptcy?

Student loans are generally not discharged in either chapter unless you can show undue hardship, which is a high legal bar. You must prove that repaying the loan would prevent you from maintaining a minimal standard of living, that this hardship is likely to continue, and that you have made a good-faith effort to repay. Few people meet this test, but it is possible in both Chapter 7 and Chapter 13.