Chapter 7 vs. Chapter 13 bankruptcy: which one applies to you
Two very different tools with confusingly similar names. One erases qualifying debt in a few months. The other restructures it over three to five years.
Which one is open to you is mostly decided by your income and what you own, not by preference.
We should say this up front. This site earns a referral fee when someone enrolls in a debt relief program, and bankruptcy is that program’s main competitor. So read this knowing we have a reason to undersell it, and judge whether we did. Our full disclosure explains the arrangement.
The short version
| Chapter 7 | Chapter 13 | |
|---|---|---|
| What it does | Discharges qualifying debt | Reorganizes debt into a court plan |
| How long | About 4 to 6 months | 3 or 5 years |
| Requires | Passing the means test | Regular income |
| Your property | Non-exempt assets can be sold | You keep it |
| Best for | Low income, few assets | Behind on a house or car you want to keep |
| Credit reporting | Up to 10 years | Usually removed after 7 |
| Court filing fee | $338 | $310 |
Chapter 7: the fast one
A trustee sells whatever non-exempt property you have, distributes the proceeds, and the qualifying remainder of your unsecured debt is discharged.
Most people keep everything. Exemptions protect a certain amount of home equity, a vehicle, household goods, tools of your trade and retirement accounts. The amounts vary by state and some states let you choose federal exemptions instead. For a lot of filers there is simply nothing non-exempt worth selling.
The means test decides eligibility. If your income is below your state’s median, you generally qualify. Above it, a calculation of income minus allowed expenses determines whether filing is presumed abusive.
The timeline is short. The meeting of creditors happens 21 to 40 days after filing, and discharge typically follows 60 to 90 days after that. Call it four to six months from start to finish.
You can only receive another Chapter 7 discharge eight years after the last filing.
Chapter 13: the one that saves the house
You keep everything and repay some or all of what you owe through a court-supervised plan.
The plan length is not a choice. Below your state’s median income it is three years. Above it, five. Nothing can run longer than five.
This is the one that stops a foreclosure. Filing stops the foreclosure immediately and lets you bring past-due mortgage payments current over the life of the plan. Chapter 7 cannot do that. If you are behind on a home you intend to keep, this is usually the reason to choose 13 over 7.
It also protects co-signers on consumer debts from collection, which matters if a family member guaranteed something.
There are debt limits. Currently around $526,700 in unsecured debt and $1,580,125 in secured. These adjust periodically.
Discharge comes at the end, after all plan payments are made. Not at filing.
The automatic stay
The moment you file, under either chapter, an automatic stay takes effect. Creditors cannot start or continue lawsuits, cannot garnish wages, and cannot even call you.
Nothing else on this site does that. Not settlement, not consolidation, not a debt management plan. If wages are already being garnished or a lawsuit is moving, this is the only tool that stops it the same day.
See can a creditor garnish my wages.
What bankruptcy does not erase
- Child support and alimony
- Most recent tax debts
- Government-guaranteed student loans, absent a separate hardship showing
- Debts from injuring someone while driving intoxicated
- Debts from fraud
In Chapter 13, your mortgage survives too. You are curing the arrears, not erasing the loan.
What it costs
The court filing fee is $338 for Chapter 7 and $310 for Chapter 13, and Chapter 13’s can be paid in installments.
Attorney fees are the larger number and vary widely by region and complexity. Chapter 13 typically costs more than Chapter 7 because the case runs for years. Many bankruptcy attorneys offer a free consultation, and legal aid handles some cases at no cost.
You must complete credit counseling from an approved agency within 180 days before filing, and a debtor education course before discharge.
Where bankruptcy beats settlement
This is the part a site like ours has an incentive to skip, so here it is plainly.
It is usually faster. Chapter 7 discharges in four to six months. A settlement program runs 24 to 48 months.
The outcome is certain. A discharge is a court order. In settlement, every creditor decides independently whether to accept anything, and some sue instead.
There is no tax bill. Debt discharged in bankruptcy is excluded from income. Settled debt can generate a 1099-C, and you only escape the tax if you were insolvent. See the 1099-C.
It stops collection immediately. Settlement does the opposite, since the strategy usually depends on falling behind first.
It often costs less. Settlement fees run 15% to 25% of enrolled debt. On $40,000 that is $6,000 to $10,000, plus the settlements themselves.
Where settlement can still make sense
You do not qualify for Chapter 7 and Chapter 13’s plan payment is no better than what a settlement program would cost.
The credit impact matters more to you than the timeline. Bankruptcy reports for up to ten years under federal law, though the bureaus generally drop a completed Chapter 13 after seven. Settlement damages your credit too, but for less time.
You have assets a Chapter 7 trustee could sell that your state’s exemptions do not cover.
You have a professional license or clearance where a filing carries specific consequences. This is narrower than people assume, so check rather than assume.
How to decide
Talk to a bankruptcy attorney before ruling it out. Most offer free consultations, and an hour of accurate information about your own numbers is worth more than any article.
The mistake runs both directions. Filing when a payment plan would have worked costs you a decade of credit. Ruling it out on feeling when the arithmetic says otherwise costs you years of payments toward a balance you were never going to clear.
If your balance is still within reach of a monthly payment, none of this applies yet. See what your payoff actually looks like, then decide.
Sources
- United States Courts, Chapter 7 Bankruptcy Basics, on the means test, exemptions, the 21 to 40 day creditors meeting, discharge timing, filing fees, credit counseling and the automatic stay
- United States Courts, Chapter 13 Bankruptcy Basics, on eligibility and debt limits, plan length by median income, foreclosure and co-signer protection, filing fees and discharge on plan completion
- Dollar thresholds and debt limits adjust periodically. Credit reporting durations reflect Fair Credit Reporting Act limits and credit bureau practice