Chapter 7 and Chapter 13 are the two consumer bankruptcy chapters most individuals use, and they work in fundamentally different ways. One sells off what the law does not protect and wipes the slate quickly; the other keeps everything and rebuilds it through a multi-year repayment plan. Knowing which is which is the first step toward picking the path that actually fits your situation.
How Chapter 7 and Chapter 13 differ
Chapter 7 is called liquidation. A court-appointed trustee reviews your assets and can sell any non-exempt property to pay creditors. In practice most filers keep everything because exemptions cover their property, but the trustee has that power. Once the case closes, most remaining qualifying unsecured debt — credit cards, medical bills, personal loans — is discharged, meaning you are no longer legally obligated to pay it. Chapter 7 is fast, usually about four to six months from filing to discharge.
Chapter 13 is called reorganization. You keep all of your property, including non-exempt assets, and instead repay creditors part or all of what you owe through one court-approved repayment plan that runs three to five years based on your income. When you complete the plan, eligible remaining balances are discharged. It is slower and demands steady income, but it protects assets that Chapter 7 could put at risk.
The means test: who can file Chapter 7
You cannot simply choose Chapter 7 — you have to qualify through the means test. The first step compares your household income to your state's median income for a household of your size. If your income is below your state's median, you generally qualify for Chapter 7 automatically. If it is higher, a second calculation looks at your disposable income after allowed expenses to decide whether you can afford to repay creditors; if you can, you may be steered into Chapter 13 instead.
Because the median figures vary by state and household size and change over time, do not rely on a number you read online. A bankruptcy attorney can run the current means-test math for your county and tell you which chapter is open to you. Whether the automatic stay applies the moment you file is the same in either chapter — see does bankruptcy stop wage garnishment and lawsuits? for how that protection works.
Chapter 13's power: curing arrears on a home or car
Chapter 13's signature advantage is curing arrears. If you have fallen behind on a mortgage or car loan you want to keep, Chapter 13 can stop a foreclosure or repossession and let you catch up the missed payments gradually over the life of the plan, while you stay current going forward. Chapter 7 generally cannot do this — it does not provide a mechanism to make up past-due secured payments, so a lender can resume foreclosure once the case ends if you are behind.
Chapter 13 can also cram down certain secured loans — for example, reducing the balance on a car bought long enough before filing to roughly what the car is now worth. Importantly, a cram down generally cannot be applied to a mortgage on your primary residence. These are technical, fact-specific tools, which is exactly why this chapter is usually handled with a lawyer rather than alone.
Which one tends to fit
There is no universal answer, but some patterns are common:
- Chapter 7 often fits when your income is below your state's median, your debt is mostly unsecured, and you have little non-exempt property to protect. You want a fast, clean discharge.
- Chapter 13 often fits when your income is above the median, when you are behind on a house or car you want to keep, or when you have non-exempt assets you would lose in a Chapter 7. You trade speed for control and asset protection.
For many people, though, the better fit is not bankruptcy at all but debt settlement or a nonprofit debt-management plan. If you are undecided, start with the neutral which debt relief option tool, then confirm with a professional. What assets exemptions actually shield is covered in what assets can you keep in Chapter 7?.
What both chapters share
Despite their differences, Chapter 7 and Chapter 13 share several features:
- Both trigger the automatic stay the moment you file, which pauses most collection activity, lawsuits, and wage garnishment.
- Both require nonprofit credit counseling from an approved agency before you file, and a debtor-education course after filing before your debt is discharged. You can look up approved providers through the U.S. Trustee Program.
- Both are public records and stay on your credit report for years — generally up to about a decade for Chapter 7 and a somewhat shorter window for Chapter 13. See how long bankruptcy stays on your credit report for the timelines.
- Neither erases everything: some obligations such as recent taxes, most student loans, and domestic-support debts may survive — see what debts can't be discharged in bankruptcy?.
Be honest with yourself about the downsides. Bankruptcy can lower your credit score sharply at first, it becomes part of the public record, and the consequences last for years even though the impact fades over time. You should never try to settle a non-dischargeable, federal, or domestic-support debt as if it were ordinary unsecured debt — those follow different rules.
Getting real advice for your situation
Which chapter is right depends on numbers — your income against your state's median, what exemptions cover in your state, and which debts you carry — and on goals like saving a home. Because bankruptcy is a legal path, the right place to confirm your options is a bankruptcy attorney licensed in your state, not a debt-settlement company; a settlement firm is never a substitute for legal advice. Many attorneys offer a free or low-cost consultation, and if cost is a barrier, legal aid in your area may help. You can read the rules and forms straight from the official courts site at uscourts.gov, and look up an approved counseling agency through the U.S. Trustee Program.
If you are not sure bankruptcy is even the right route, compare it honestly against the alternatives with the which debt relief option tool and the Chapter 7 bankruptcy and credit card debt guide before you decide.
This page is general information, not legal advice. Bankruptcy law is fact-specific and varies by state, so talk to a bankruptcy attorney licensed in your state before acting on anything here.