Chapter 7 vs. Chapter 13: Which Fits Your Situation?

What Chapter 7 does

Chapter 7 is sometimes called liquidation bankruptcy. The name sounds dramatic, but the mechanics are straightforward.

You file a petition with the bankruptcy court. A trustee is appointed to your case. The trustee looks at what you own, and anything that isn't protected by an exemption can be sold, with the proceeds going to your creditors. What's exempt depends on your state. Many states use their own exemption rules instead of the federal ones, and some let you choose between the two. Which of your belongings are protected is often a question of state law, which is one more reason the attorney conversation matters.

Here's the part most people don't expect: in most individual Chapter 7 cases, there's nothing to sell. The trustee reviews the assets, finds everything is exempt or covered by liens, and files what's called a "no asset" report. No distribution happens. The case moves toward discharge.

A discharge is the court order that releases you from personal liability on qualifying debts. Not every debt qualifies, and the discharge doesn't remove liens already attached to property. But for unsecured debts like credit cards and medical bills, it's the fresh start the process is built around.

A few practical notes. You generally have to complete credit counseling from an approved agency within 180 days before filing. Filing triggers an automatic stay, which stops most collection actions: lawsuits, wage garnishments, collection calls. And unlike Chapter 13, there's no multi-year repayment plan to complete.

Income is an important eligibility factor, but not the only one. For individuals with primarily consumer debts, income above the applicable state median generally triggers an additional means-test calculation using specified income and allowed expense figures. A presumption of abuse may arise, but it can sometimes be rebutted. Being above the median does not automatically rule out Chapter 7, and some filers are exempt from the means test.

What Chapter 13 does

Chapter 13 is called the wage earner's plan, and the name tells you most of what you need to know. It's for individuals with regular income who repay some or all of their debts over three to five years through a court-approved plan.

Here's how it works. You propose a repayment plan. You make fixed payments to a trustee, usually monthly, and the trustee distributes the money to your creditors. Collection activity on debts covered by the bankruptcy protections is generally restricted while the case proceeds, subject to exceptions and court orders.

The length depends on income. If your income is below your state's median, the plan is generally three years. Above the median, it's generally five. It can't run longer than five years either way.

The plan has rules. Priority debts, like most taxes and domestic support obligations, generally have to be paid in full. Unsecured creditors have to receive at least as much as they would have gotten if your assets had been liquidated in Chapter 7. And you're expected to commit your projected disposable income, what's left after reasonable living expenses, to the plan for the full period.

Chapter 13 can provide a way to pause a foreclosure and catch up on missed mortgage payments over time, subject to the automatic stay's limits and applicable court orders. You still have to keep making your regular mortgage payments during the plan, and it can't help if the foreclosure sale already happened before you filed. But for people behind on a home they want to keep, this is often the reason Chapter 13 is on the table at all.

It also protects co-signers on consumer debts in a way Chapter 7 doesn't, and it functions a bit like a court-supervised consolidation: one payment to the trustee instead of many to creditors.

The tradeoff is the commitment. Three to five years of living on a fixed, court-monitored budget. You generally can't take on new debt without checking with the trustee first. Miss your payments and the court can dismiss the case or convert it to Chapter 7. People start Chapter 13 with good intentions and real income. Life still happens over five years, which is why courts allow plan modifications and, in genuine hardship cases, a limited hardship discharge.

Chapter 13 has statutory debt limits. As of October 2026, the U.S. Courts lists unsecured debts below $526,700 and secured debts below $1,580,125. These limits may change, so confirm the amounts applicable on your filing date.

The differences that actually drive the choice

Strip away the legal vocabulary and the decision usually comes down to four things.

1. Your income. Income affects Chapter 7 means testing and Chapter 13 plan requirements, but it is not a simple pass-or-fail line between the chapters. The type of debt, allowed expenses, regularity of income, and other eligibility rules also matter.

2. What you own. Chapter 7 puts nonexempt assets on the table. If you own property beyond what your state's exemptions protect, a trustee could sell it. Chapter 13 lets you keep your property while you repay over time. For most people with modest belongings, this distinction barely matters (remember the no-asset cases). It matters a lot if there's meaningful equity somewhere: a second property, valuable non-exempt assets.

3. Your home. Behind on the mortgage and want to keep the house? Chapter 13 is built for exactly that: stop the foreclosure, catch up over the life of the plan. Chapter 7 doesn't offer a catch-up mechanism. If keeping the home isn't the goal, this factor drops out.

4. Time and discipline. Chapter 7 involves no multi-year repayment plan. Chapter 13 is a multi-year commitment that demands steady income and budget discipline the entire way. Some people prefer the clean break. Others prefer repaying what they can. Neither preference is wrong, but the plan only works if you can actually live inside it for the full term.

Which situations tend to fit which

These are patterns, not prescriptions. Every situation has details that change the answer, which is why the attorney conversation matters.

Chapter 7 tends to fit people with lower income, mostly unsecured debt (credit cards, medical bills, personal loans), and little in nonexempt assets. The classic profile is someone whose budget has no room for a repayment plan at all.

Chapter 13 tends to fit people with regular income who are behind on secured debts they want to keep, a mortgage most commonly, or whose income is too high for Chapter 7. Chapter 13 may also provide a co-debtor stay for qualifying consumer debts, although that protection has exceptions and limits.

There's overlap in the middle, and that's normal. Income near the median, some assets, a mix of secured and unsecured debt: these are the cases where the choice genuinely isn't obvious and professional guidance earns its keep.

Questions to ask a bankruptcy attorney

If you go, these are the questions worth bringing:

• Given my income, would I pass the means test for Chapter 7 in my state?
• What's exempt and what isn't, for the property I actually own?
• I'm behind on my mortgage (or car loan). What does each chapter mean for keeping it?
• What debts of mine wouldn't be discharged in either chapter?
• What would each option cost me, in filing fees and attorney fees?
• Are there non-bankruptcy paths I haven't seriously considered, like a debt management plan?

That last question matters. Ask the attorney to explain both bankruptcy and non-bankruptcy options, including when a debt management plan or another approach might be appropriate.