What Are the Differences Between Chapter 7 and Chapter 13 Bankruptcy?

Chapter 7 and Chapter 13 are the two most common types of personal bankruptcy people consider filing when they need financial relief, and they work in fundamentally different ways. Chapter 7 is a liquidation bankruptcy that erases qualifying debts in about four to six months but it can lead to the sale of nonexempt property for the benefit of your creditors. Chapter 13 is a reorganization bankruptcy that lets you keep your property while repaying debts over three to five years through a court-approved plan.

In This Article

Chapter 7 vs. Chapter 13 Bankruptcy: Key Differences

If you're a small business owner, you'll want to understand how each bankruptcy chapter will affect your company. Find out how Chapter 7 or Chapter 11 bankruptcy can help you unwind a closed company or help a struggling business thrive.

Should You Use Chapter 7 or Chapter 13?

Most people who qualify choose Chapter 7 because it eliminates qualifying debts faster and without a repayment plan. Chapter 13 is the better choice if you're behind on your mortgage and want to keep your home, have nondischargeable debts you'd like to repay over time, or earn too much to pass the Chapter 7 means test.

• Choose Chapter 7 if your income is low enough to qualify, you have little nonexempt property to lose, and your main goal is a fast discharge of unsecured debts like credit cards and medical bills.
• Choose Chapter 13 if you're behind on a mortgage or car payment and want to keep the property, you have nondischargeable debts like back taxes or child support arrears you want to repay over time, or you don't qualify for Chapter 7 but still need debt relief.

How Chapter 7 Bankruptcy Works

Chapter 7 is a liquidation bankruptcy that erases qualifying unsecured debts, such as credit card balances, medical bills, and personal loans, in about four to six months without requiring you to repay creditors through a plan. The trade-off is that a court-appointed trustee can sell any property you can't protect under your state's exemption laws to pay creditors. As soon as you file, the "automatic stay" order stops most creditors from pursuing collection efforts. (11 U.S.C. § 362.)

Chapter 7 Eligibility and the Means Test

To qualify for Chapter 7, your disposable income must be low enough to pass the Chapter 7 means test, which is a two-part income calculation that determines whether you have enough left over to repay at least a portion of your debts. If your household income is below your state's median, you pass automatically. If not, you get a second chance by subtracting certain allowed expenses; if that still leaves too little to fund a Chapter 13 plan, you qualify. If you earn too much to qualify for Chapter 7, Chapter 13 is the alternative. (11 U.S.C. § 707(b).)

What Property You Can Keep in Chapter 7

Most Chapter 7 filers keep all or most of their property because exemption laws protect common assets, which are generally the things you need to maintain a household and employment. Your state decides whether you can use federal bankruptcy exemptions or state exemption laws. Although exemption laws differ, you'll typically be able to keep:

• Home equity. A "homestead" exemption protects home equity. Under federal exemptions, you can exempt up to $31,575 for filings between April 1, 2025, and March 31, 2028. Most states allow debtors to protect some home equity, although a few states don't have a homestead exemption. Find out about other requirements you must meet to keep your home in Chapter 7 bankruptcy. (11 U.S.C. § 522.)
• Insurance. You usually get to keep the cash value of your policies.
• Retirement plans. ERISA-qualified plans receive protection in bankruptcy, but not all investment accounts qualify. Find out whether your retirement plan is protected in bankruptcy.
• Personal property. You can usually keep a modest car in Chapter 7, as well as most household goods, furniture, furnishings, clothing, appliances, books, and musical instruments. Luxury items aren't protected, and jewelry is often limited to a few thousand dollars. The federal exemptions allow $5,025 in vehicle equity for filings between April 1, 2025, and March 31, 2028. (11 U.S.C. § 522.)
• Wildcard exemption. Many states have a "wildcard" exemption you can apply toward any property, but the amounts and property exclusions vary significantly.
• Public benefits. Welfare, Social Security benefits, unemployment insurance, and the like are protected.
• Tools used on the job. Most states allow filers to keep up to a few thousand dollars' worth of the tools used in a trade or profession.

This list is a snapshot of common exemptions. Many more exist, so check your state's exemption laws. Chapter 7 works best for those with little or no nonexempt assets, but even if you'd lose some property, it might still make sense if the debt you'd erase exceeds the value of what you'd give up.

Losing property isn't necessarily bad if you have priority debt, such as child support arrearages or back taxes. The trustee will first apply sale proceeds to priority debts, many of which are nondischargeable, so the sale of nonexempt assets can reduce what you still owe after your case ends.

How Chapter 13 Bankruptcy Works

Chapter 13 is a reorganization bankruptcy that lets you repay creditors, some in full, some what you can afford, through a three- to five-year court-approved plan while letting you keep all your property (although you’ll pay to keep the property that would have been sold had you filed for Chapter 7). The amount you'll repay depends on your income, the type of debt you have, and the value of your nonexempt property (again, the property that would have been sold in Chapter 7). It's designed for debtors with regular income who need to catch up on missed secured payments, repay nondischargeable debts over time, or simply don't qualify for Chapter 7.

Chapter 13 is typically the right choice for debtors who:

• don't qualify for Chapter 7 but need debt relief to lower credit card payments, stop foreclosure, or prevent a wage garnishment
• have nondischargeable debts such as alimony or child support arrears they'd like to pay off over three to five years, or
• have fallen behind on a house or car payment and want to catch up on missed payments and keep the property.

Other benefits exist, too, such as the ability to "cram down" the amount owed on a vehicle or investment property to the property's value, and the option to strip wholly unsecured junior liens from your residence. In Chapter 13, the trustee doesn't sell your property, but you must pay creditors an amount equal to the value of any nonexempt assets.

Debts That Can't Be Discharged in Bankruptcy

Both chapters discharge many common debts, but some debts survive bankruptcy regardless of which chapter you file. Nondischargeable debts include:

• child support and alimony
• most student loans
• most tax debts (though older income tax debts may qualify for discharge under certain conditions)
• debts incurred through fraud or intentional wrongdoing
• criminal fines and restitution, and
• debts from personal injury or death caused by drunk driving.

Chapter 13 does discharge a slightly broader category of debts than Chapter 7—including some debts arising from willful and malicious injury to property and certain divorce-related property settlement obligations—which is another reason some debtors choose it even when they qualify for Chapter 7. Learn more about what debts bankruptcy can eliminate.

When to Consider Filing for Bankruptcy

Bankruptcy could be the answer to your financial situation if it’s no longer feasible to pay your bills. Common signs include:

• your monthly debt payments add up to more than half of your take-home pay
• creditors are suing you or threatening to garnish your wages
• you have no realistic path to paying off your debt within five years, or
• you're behind on your mortgage or car payments and face foreclosure or repossession.

Bankruptcy doesn’t solve all debt issues, and it will affect your credit, as well as your ability to rent housing, open bank accounts, and more. Before filing, consider speaking with a nonprofit credit counselor or a bankruptcy lawyer to explore all your options.

How Bankruptcy Affects Your Credit

Both chapters will negatively affect your credit, but the impact isn’t the same. A Chapter 7 bankruptcy stays on your credit report for up to 10 years from the filing date, which is about nine and a half years after the Chapter 7 case ends. A Chapter 13 bankruptcy stays for up to seven years after the filing date, which means it will remain on your report two to four years after your case ends, depending on whether you pay into a three- or five-year plan.

Even so, the negative impact decreases over time because the bankruptcy eliminates the delinquent accounts that were already dragging down your scores. So some find that credit scores often begin to recover relatively quickly after discharge, especially those who employ tried-and-true strategies such as opening a secured credit card, making on-time payments, and keeping balances low.

Bankruptcy Filing Requirements: Credit Counseling and Debtor Education

Before you can file under either chapter, you must complete a credit counseling course from a court-approved provider within 180 days of filing. The course typically takes about an hour and costs $25 to $50, though fee waivers are available for those who can't afford it. After filing, you'll also need to complete a debtor education course—sometimes called a financial management course—before you can receive your discharge. Both courses are available online, by phone, and in person through providers approved by the U.S. Trustee Program. (11 U.S.C. § 109(h).)

Bankruptcy Filing Costs

To file for bankruptcy, you must pay the court filing fee of $338 for Chapter 7 and $313 for Chapter 13. If your income falls below 150% of the federal poverty level and you file for Chapter 7, you can ask the court to waive the fee. If your income exceeds that level, the court will typically allow you to pay the fee in four installments (but don’t be late on an installment or the court will dismiss your case and you’ll need to repay the fee to reopen it).

Attorney's fees vary widely by case complexity and location, but Chapter 13 attorney's fees are almost always higher than Chapter 7 fees because of the ongoing plan work involved. However, in Chapter 13, attorney's fees can usually be included in the repayment plan, with initial payments sometimes being quite low. If you don't have the funds for a lawyer, read our guide on what to do when you can't afford a bankruptcy lawyer.

Chapter 7 Bankruptcy FAQ

• How do I find out whether I'd qualify for Chapter 7 bankruptcy?
• Will I lose property in Chapter 7 bankruptcy?

How Do I Find Out Whether I'd Qualify for Chapter 7 Bankruptcy?

You'll take the two-part Chapter 7 means test. If your household income is lower than the median household income in your state, you'll pass. If you don't qualify after the first part, you'll have another chance—the second portion lets you subtract certain monthly expenses from your income. If you don't have enough remaining to pay a meaningful amount to creditors through a Chapter 13 repayment plan, you'll qualify for Chapter 7.

Will I Lose Property in Chapter 7 Bankruptcy?

In most Chapter 7 cases, filers keep all their property because everything they own is covered by exemptions. Whether you lose anything depends on your state's exemption laws and how much nonexempt equity you have. Even if you'd lose some property, Chapter 7 might still make sense if the debt you'd discharge is worth more than what you'd give up.

Chapter 13 Bankruptcy FAQ

• How much of my debt will I repay if I file for Chapter 13 bankruptcy?
• How long will my repayment plan last if I file for Chapter 13 bankruptcy?
• We're facing foreclosure. If we file for Chapter 13 bankruptcy, can we keep our home?
• My only income is from retirement benefits. Can I use those to fund a Chapter 13 repayment plan?
• I owe back taxes to the IRS—can Chapter 13 bankruptcy help?

How Much of My Debt Will I Repay If I File for Chapter 13 Bankruptcy?

How much you repay depends on the type of debt you have. Here are the general guidelines:

• Bankruptcy fees. You must pay 100% of the bankruptcy filing fees, trustee commissions, and your bankruptcy attorney's fees.
• Priority debts. You must pay 100% of the following obligations: child and spousal support arrears owed to the parent or child; most tax debts except those first due at least three years before your bankruptcy filing; wages, salaries, or commissions you owe to employees up to a specific limit; and contributions owed to an employee benefit fund.
• Secured debts. If you want to keep your home, car, or other secured property, you'll have to pay 100% of the arrearage amount, 100% of the debt secured by a tax lien, and remain current on the monthly payment.
• Unsecured nonpriority debts. You'll pay anywhere between 0% and 100% of the amount you owe, depending on your disposable income, the length of your repayment plan, and the total value of your nonexempt property. Learn more about your obligations under a Chapter 13 bankruptcy plan.

How Long Will My Repayment Plan Last If I File for Chapter 13 Bankruptcy?

Your plan will last either three or five years. If your gross household income exceeds the median yearly income for a household of your size in your state, your plan must last five years—unless you can pay 100% of your unsecured debt in a shorter period. You can propose a three-year plan if your income is below your state's median. Learn whether you're eligible for Chapter 13.

We're Facing Foreclosure. If We File for Chapter 13 Bankruptcy, Can We Keep Our Home?

Yes—Chapter 13 is specifically designed to help homeowners stop foreclosure and save their home. Once you file, the automatic stay halts foreclosure proceedings. You can then pay off the mortgage arrearage—late, unpaid payments—over your three- to five-year repayment plan, as long as you also stay current on ongoing mortgage payments going forward. The mortgage lender must accept payments toward the arrearage over your repayment period once the court approves your plan. Learn more about your home in Chapter 13 bankruptcy.

My Only Income Is from Retirement Benefits. Can I Use Those to Fund a Chapter 13 Repayment Plan?

Yes. Courts allow debtors to use income from many sources to fund a Chapter 13 plan, including retirement benefit income. The key is showing the judge that you have enough reliable income to meet your payment obligations.

I Owe Back Taxes to the IRS—Can Chapter 13 Bankruptcy Help?

Yes. Although you must repay 100% of your tax debt unless it qualifies for discharge because of age, you can spread those payments out over three to five years rather than paying the IRS all at once.

Getting Help with Bankruptcy

If you're not sure which chapter fits your situation, a bankruptcy lawyer can walk you through the means test, explain what you'd keep or lose, and help you build a realistic plan.