Is It Better To File A Chapter 7 or 13 Bankruptcy?

Choosing between Chapter 7 and Chapter 13 bankruptcy is a crucial decision for individuals seeking debt relief, and it can be a challenging and emotional process. This guide is designed to provide clear support as it compares the two chapters, helps you determine eligibility, and explains how each process works so you can make an informed choice when deciding which type of bankruptcy is right for your unique situation.

Chapter 7 vs. Chapter 13: The Basics

Below, we begin by explaining the key characteristics of each chapter and follow with a side-by-side table, allowing you to easily compare the two. Detailed explanations of the benefits of each chapter's benefits follow.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is a liquidation chapter that eliminates most debts within four to six months. You must meet income requirements and surrender nonexempt property to a trustee for the payment of creditors. (11 U.S.C. § 701 et seq.)

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a reorganization chapter that requires a three- to five-year repayment plan. You keep all property while paying creditors through court-supervised monthly payments based on disposable income.

Which Is Better: Chapter 7 or Chapter 13 bankruptcy?

Chapter 7 bankruptcy is better suited for low-income filers with few assets and qualifying debts, such as credit card balances and medical bills. Chapter 13 works for higher-income individuals, those who wish to avoid foreclosure or repossession, or anyone seeking to retain property they'd otherwise lose in Chapter 7.

How Do I Choose Between Chapter 7 and Chapter 13 Bankruptcy?

Choose Chapter 7 bankruptcy if you pass the income requirements or the "means test," have mainly credit card or medical debt, can protect your property with bankruptcy exemptions, and want quick debt relief. Choose Chapter 13 if you earn too much for Chapter 7, are behind on mortgage or car payments, or have nonexempt property to protect.

Chapter 7 Bankruptcy: Fast Debt Relief Through Liquidation

Over 60% of bankruptcy filings are Chapter 7 filings, and the total number is increasing, jumping from 284,975 cases in June 2024 to 333,321 cases in June 2025. (U.S. Courts, Administrative Office, Bankruptcy Statistics (June 2025).)

Here's why most people prefer Chapter 7.

• It's relatively quick. A typical Chapter 7 bankruptcy case takes four to six months to complete.
• No payment plan. Unlike Chapter 13 bankruptcy, a filer doesn't pay into a three- to five-year repayment plan.
• You can protect property. Although you can lose property in Chapter 7 bankruptcy, many filers can keep everything they own using bankruptcy exemptions. Bankruptcy lets you protect most necessities, and if you don't have much in the way of luxury goods, you'll likely be able to "exempt" or protect all or most of your property.
• You can keep a house or a car in some situations. You can keep your home or car as long as you're current on the payments, can continue making payments after the bankruptcy case, and can exempt the amount of equity you have in the property.
• Most debts get wiped out. A filer emerges debt-free except for "nondischargeable debts," such as student loans, recent taxes, and unpaid child support. (11 U.S.C. § 523.)

When Chapter 7 Bankruptcy May Not Be Your Best Option

Understanding the pros and cons of Chapter 7 bankruptcy will help you choose the right chapter for your financial situation. Here are some limitations.

When Might I Lose Property in Chapter 7?

It's essential to understand how your assets might be affected in Chapter 7. While many of your belongings might be protected by exemptions, there are instances where the trustee could sell nonexempt property. Specifically, if you own property not covered by your state's exemption laws, such as luxury vehicles or expensive collectibles, the trustee will sell them to repay your debts.

What Debts Aren't Discharged in Chapter 7?

Chapter 7 effectively eliminates credit card balances, medical bills, and personal loans. However, not all debts are "discharged" in bankruptcy, including:

• recent income tax debts
• student loans
• domestic support obligations
• court fines and criminal restitution
• debts for personal injury or death caused by driving under the influence, and
• debts incurred through fraud or false pretenses. (11 U.S.C. §§ 523(a).)

If you owe a significant percentage of debts that are nondischargeable in Chapter 7, Chapter 13 could be a more suitable option, as it allows you to pay off these debts over time. (11 U.S.C. § 727.)

Chapter 13 Bankruptcy: A Repayment Plan for Financial Reorganization

Although Chapter 13 offers more options, it's far more complex than Chapter 7, with only 49.4% of filers finishing their plans in 2024. (U.S. Courts, Administrative Office, Chapter 13 Plan Completion Statistics (2024).)

Here's what you need to know.

• It involves a repayment plan. Unlike Chapter 7, Chapter 13 requires filers to propose and adhere to a three- to five-year Chapter 13 repayment plan.
• It offers debt consolidation and reorganization. Under Chapter 13, you consolidate your debts into one monthly payment, making it easier to manage your finances.
• You can protect all your property. Chapter 13 allows you to keep all your assets, as long as you can afford to pay for them through your repayment plan.
• You can prevent foreclosure and repossession. You can stop foreclosure and keep a home in Chapter 13 or avoid repossession of your car, giving you time to catch up on missed payments through the repayment plan.
• It can eliminate some debt. While Chapter 13 is a repayment plan, it can still result in the discharge of certain debts at the end of the plan, similar to Chapter 7.

Key Benefits of Chapter 13 Bankruptcy

It isn't unusual for people who qualify for Chapter 7 to choose Chapter 13 because it offers benefits not available in Chapter 7.

Can I Keep All My Property in Chapter 13 Bankruptcy?

Chapter 13 allows you to keep all of your property, both exempt and nonexempt. Instead of surrendering nonexempt assets, you pay the value of that nonexempt property to your unsecured creditors through your repayment plan.

So, if you have nonexempt property that you can't bear to part with and can afford to keep, Chapter 13 bankruptcy might be the better choice. Learn about what you must pay in a Chapter 13 plan.

Can Chapter 13 Help Me Catch Up on Mortgage or Car Payments?

Chapter 13 filers can save homes from foreclosure and cars from repossession. Chapter 13 allows you to include missed payments in your repayment plan and catch up on what you owe over a period of three to five years. As long as you keep up with your Chapter 13 plan payments and your regular ongoing mortgage or car payments, you can prevent foreclosure or repossession.

Car and Mortgage Cramdowns in Chapter 13 Bankruptcy

Sometimes, you can use a Chapter 13 "cramdown" to reduce the amount you owe on real estate, cars, and other financed property to the collateral's actual value. It's a great tool when you owe more than the property is worth.

Cars. Suppose you have a car loan that you took out more than two and a half years before filing for Chapter 13. In that case, any amount owed above the car's value is reclassified as unsecured debt and paid at the same percentage as your other unsecured creditors.

Real estate. The same basic rules apply. However, you can't use a cramdown on the home you live in, and you must pay the entire reduced balance through the repayment plan. If you'd like to cram down the mortgage on your vacation home in the Poconos, expect a hefty monthly payment.

Can Chapter 13 Lien Stripping Remove a Second Mortgage or HELOC?

If your residential home is worth less than you owe on your first mortgage, Chapter 13 might allow you to "lien strip" a second mortgage, HELOC, or other junior lien. Lien stripping removes a "wholly unsecured lien" – a junior loan that would receive nothing if you sold your house because the sale proceeds wouldn't fully cover the first mortgage. The debt is then treated as unsecured in your repayment plan, and you only pay a percentage of the total amount, thereby reducing your overall debt burden.

Example. Suppose you owe $500,000 on your first mortgage and $70,000 on a second, but your house is worth only $460,000. Since the house value is less than the first mortgage balance, the second mortgage is wholly unsecured. Chapter 13's lien stripping procedure can eliminate this junior lien and treat the $70,000 as unsecured debt in your plan.

Can Chapter 13 Force Creditors to Accept a Payment Plan?

Yes. Once the court confirms your plan, your creditors must accept the payments. The plan lets you consolidate your debts into a single, manageable payment.

How Chapter 13 Bankruptcy Can Help You with Tax Debts

Chapter 13 can offer advantages for certain income tax debts. You might be able to pay only a percentage of some income tax debts and discharge the rest, provided the debt is older than three years and not secured by a lien on your property.

Tax debts that don't meet these or other requirements (like being less than three years old or secured by a lien) must be paid in full through your Chapter 13 plan, including interest and penalties. (11 U.S.C. § 523(a)(1).) Given the complexity, it's essential to consult both a bankruptcy attorney and a tax professional to understand your specific tax situation.

Does Chapter 13 Protect My Codebtors?

Yes. Chapter 13 offers a "codebtor stay" that prohibits a creditor from pursuing your codebtor during the repayment plan. (11 U.S.C. § 1301.) By contrast, filing for Chapter 7 with a codebtor can leave the codebtor fully responsible for the remaining balance after your discharge.

What Are the Disadvantages of Chapter 13 Bankruptcy?

While Chapter 13 offers many benefits, it also has potential drawbacks that you should consider.

• Difficult to finish. Committing to a three- to five-year repayment plan requires dedication, and it isn't always easy to complete. Understanding the challenges upfront can help you create a realistic plan and increase your chances of success.
• It can be expensive. If you owe nondischargeable past due taxes or support arrearages, you'll pay the entire balance in your plan. Additionally, to retain a house or car, you'll need to repay the arrearages in your plan while continuing to make your regular monthly payment.

Chapter 7 vs Chapter 13 Comparison: Complete Guide to Decision Making

How to Choose Between Chapter 7 and Chapter 13 Bankruptcy

Your decision between Chapter 7 and Chapter 13 will largely hinge on your income, assets, and financial goals.

Choose Chapter 7 if you:

• pass the means test
• have primarily unsecured debts like credit cards, medical bills, or personal loans
• can protect all or most property with exemptions.
• are current on your mortgage and car loan, unless you're willing to surrender the property, and
• want a quick debt discharge or can't afford a long-term repayment plan.

Choose Chapter 13 if you:

• earn too much income for Chapter 7 and can afford a reasonable monthly payment
• are behind on mortgage or car payments and want to prevent foreclosure or repossession
• are willing to pay to keep nonexempt property
• want to pay nondischargeable debts like recent taxes or support arrears over time, or
• have cosigners you wish to protect.

Example. Frank, a small business owner, had fallen behind on his mortgage and car payments and was considering bankruptcy. He owned a valuable antique collection which he couldn't bear to lose. He chose Chapter 13 because it allowed him to keep his home and car by catching up on missed payments through a repayment plan, and to protect his antique collection by paying its nonexempt value over time.

Example. Emily had recent income tax and student loan debt. While Chapter 7 would quickly discharge her credit card debt, it wouldn't eliminate her student loans or recent taxes. She filed for Chapter 13 and paid her nondischargeable debts over time without the threat of collection actions.

Do I Qualify for Chapter 7 bankruptcy?

You qualify for Chapter 7 bankruptcy if your income is below your state's median for your household size, or if you pass the means test calculation after deducting allowed expenses. Most states require 91 days of residency before filing.

What Is the Chapter 7 Means Test?

The Chapter 7 means test compares your average income over six months to your state's median income. If above the median, you deduct allowed expenses to determine if you have sufficient disposable income for Chapter 13 instead. (11 U.S.C. § 707(b)(2).)

Example. Helen is a single woman with a gross yearly income of $75,000, as calculated by the means test. Her state's median income for a single person is $65,000, so Helen won't pass the first part of the Chapter 7 means test. Helen will deduct actual and allowed expenses in the second portion of the means test and pass if the calculation demonstrates that she doesn't have extra funds to pay creditors.

Example. Rosie found herself buried under credit card debt after a series of slow months. While her average income over the past six months was below her state's median, a recent large, one-time project significantly inflated her income. After deducting her allowable expenses, her disposable income was still too high to qualify for Chapter 7. However, she again qualified a few months later after her average income declined.

What Is the Chapter 7 Current Income Test?

Although the means test evaluates past income, your current budget might still allow you to make reasonable monthly payments to creditors. In that case, you won't qualify for Chapter 7 bankruptcy.

Example. Jesse received a promotion and salary increase the month before filing for bankruptcy, but his monthly expenses remained unchanged. As a result, Schedules I and J of his bankruptcy paperwork showed that he had an extra $200 per month to pay creditors. Even though he passed the means test, the Chapter 7 trustee recommended that the bankruptcy judge convert Jesse's Chapter 7 case to Chapter 13. The bankruptcy judge granted the request.

How Do I Qualify for Chapter 13 Bankruptcy?

If you don't qualify for Chapter 7, Chapter 13 will be your only option. One of the simplest ways to find out is by taking the Chapter 7 bankruptcy means test.

However, making too much for Chapter 7 doesn't automatically qualify someone for Chapter 13. You'll need to take additional steps to determine whether you have sufficient income to repay everything required in a Chapter 13 repayment plan.

What Is "Disposable Income" in Chapter 13?

In Chapter 13 bankruptcy, you must pay your creditors all of your disposable income, which is the amount remaining after allowed monthly expenses, for three to five years. Disposable income is the amount that remains after subtracting allowed bankruptcy expenses from your monthly gross income.

When you claim your deductions, you can use the actual cost of some expenses and the national and local standards for others, such as the allowance for food, clothing, and housing. Here's a list of some of the deductions you'll be allowed to take:

• food and clothing
• housing and utilities
• transportation costs
• taxes
• involuntary payroll deductions
• life insurance
• court-ordered payments, such as family support
• certain education costs
• childcare expenses, and
• health care costs.

How Does the "Best Interest of Creditors" Test Apply?

The "best interest of creditors" or "best efforts" Chapter 13 test requires you to pay unsecured creditors at least as much as the value of your nonexempt property. (11 U.S.C. 1325.)

If you find that you don't earn enough to propose a Chapter 13 plan that the bankruptcy court will approve or "confirm," you're not alone. Typically, Chapter 13 plan payments are far more expensive than people think.

Bankruptcy Filing Process: Timeline, Costs, and Attorney Consultation

It's worthwhile to take a few moments to understand how the process works. It often helps make it seem less intimidating.

How Does the Automatic Stay Stop Creditors?

Upon filing either Chapter 7 or Chapter 13, an "automatic stay" immediately goes into effect. This powerful legal injunction stops most collection actions, including:

• collection calls and letters
• wage garnishments and bank account levies, and
• foreclosures, repossessions, and lawsuits.

While broadly protective, exceptions exist, for instance, for criminal proceedings and child support matters, and the duration can vary, especially with multiple bankruptcy filings.

What Is the Role of the Bankruptcy Trustee?

In both Chapter 7 and Chapter 13, a court-appointed bankruptcy trustee oversees your case, though their specific duties differ:

• Chapter 7 trustee. Sells nonexempt assets to pay creditors, reviews paperwork, and conducts the meeting of creditors.
• Chapter 13 trustee. Collects monthly plan payments and distributes them to creditors. Also reviews paperwork, conducts the meeting of creditors, and attends the confirmation hearing.

Are There State Differences in Bankruptcy?

State laws determine the property you can protect with bankruptcy exemptions, the laws that determine what assets a Chapter 7 trustee can't sell and what value you must pay to keep property in Chapter 13.

Most states require you to use the state bankruptcy exemptions, while some allow a choice between state and federal bankruptcy exemptions. When reviewing bankruptcy exemptions, remember:

• "homestead exemptions" protect equity in your residence
• "motor vehicle exemptions" protect vehicle equity, and
• "wildcard exemptions" apply to any property up to a particular value (although restrictions can apply).

Both state and federal exemptions also protect other property, such as furniture, electronics, jewelry, and retirement accounts. Also, you'll want to learn about other eligibility rules, such as the requirement to live in your state for a particular period before filing and before using that state's exemption laws to protect property in Chapter 7.

What Is the Timeline for Each Bankruptcy Chapter?

The timeline for completing a bankruptcy case varies significantly between Chapters 7 and 13.

• Chapter 7 timeline. Most Chapter 7 bankruptcy cases are over within four to six months from the date of filing. The process involves filing the petition, submitting financial documents, attending a meeting of creditors approximately one month after filing, completing a debt management course, and finally, the court issuing a discharge order that eliminates qualifying debts.

• Chapter 13 timeline. A Chapter 13 bankruptcy case is a much longer process due to the three- to five-year repayment plan. After filing the petition, you'll propose a repayment plan, begin making the proposed payments about 30 days later (even though it won't have yet been approved), and attend a meeting of creditors. You'll also appear at a confirmation hearing where the court decides whether to approve your plan. (11 U.S.C. § 1325.) After completing the plan payments, the court discharges any remaining eligible debt balances.

Do I Need a Bankruptcy Attorney?

Attempting to file for bankruptcy without legal representation can lead to costly mistakes. Hiring a bankruptcy attorney is an investment in a smoother and more successful bankruptcy process. A qualified bankruptcy attorney can:

• Evaluate your financial situation. This involves a thorough analysis of your income, expenses, assets, and debts to determine your eligibility and potential outcomes.
• Explain state-specific exemptions. You'll understand what you must do to protect property in bankruptcy.
• Determine Chapter 7 eligibility. You'll receive assistance with the means test, which can be a complex process.
• Draft a Chapter 13 plan. Another complicated task that most attorneys use software programs to complete.
• Represent you. Your attorney attends the meeting of creditors, confirmation hearings (in Chapter 13), and any other proceedings.

Frequently Asked Questions: Chapter 7 vs Chapter 13 Bankruptcy

This section answers common questions that arise during the bankruptcy process.

• What debts are eliminated in Chapter 7 vs Chapter 13?
• Can I keep my house in Chapter 7 or Chapter 13 bankruptcy?
• How much does Chapter 7 vs Chapter 13 bankruptcy cost?
• Can I File for Bankruptcy More Than Once?
• Can I file for Chapter 7 if I own a small business?
• What exactly is a "nondischargeable debt"?
• What are the current Chapter 13 debt limits?
• How long does bankruptcy stay on my credit report?
• What Happens if I Don't Complete My Chapter 13 Plan?
• What Is Chapter Conversion?
• What Are My Options Besides Bankruptcy?

What debts are eliminated in Chapter 7 vs Chapter 13?

Chapter 7 eliminates unsecured debts, such as credit cards, medical bills, and personal loans, within four to six months. Chapter 13 pays a percentage of unsecured debts over three to five years, then discharges remaining balances.

Can I keep my house in Chapter 7 or Chapter 13 bankruptcy?

Chapter 7 allows you to keep your house if you are current on payments, and exemptions protect your equity. Chapter 13 will enable you to keep your house and catch up on missed mortgage payments through a repayment plan.

How much does Chapter 7 vs Chapter 13 bankruptcy cost?

Chapter 7 costs $338 in filing fees plus attorney fees of approximately $1,800 to $3,500. Chapter 13 costs $313 in filing fees plus higher attorney fees of $3,000 to $5,000; however, attorney fees can be paid through the plan. (Filing fee amounts are current as of September 2025.)

Can I File for Bankruptcy More Than Once?

It's possible to file for bankruptcy more than once. However, there are waiting periods depending on the chapter previously filed and the chapter you wish to file. For instance, you must wait seven years between Chapter 7 cases. Learn more about multiple bankruptcy filings.

Can I file for Chapter 7 if I own a small business?

Yes, but unless you're a sole proprietor, you can only discharge debts you owe, not the company's obligations. Also, a sole proprietor must exempt property to keep it. If you have an ownership interest in an LLC or corporation, you'll need to exempt the value of your ownership interest. Learn more about bankruptcy options for individuals with small businesses.

What exactly is a "nondischargeable debt"?

A nondischargeable debt is a debt that you can't erase in bankruptcy. You'll still owe it after the case ends unless you pay it fully in Chapter 13. Common nondischargeable debts include child support, alimony, and recent taxes.

What are the current Chapter 13 debt limits?

The current Chapter 13 limits are $1,580,125 for secured debt and $526,700 for unsecured debt. (11 U.S.C. § 109(e); current amounts are published in the Federal Register and valid between April 1, 2025, and March 31, 2028.)

How long does bankruptcy stay on my credit report?

A Chapter 7 bankruptcy discharge will remain on your credit report for 10 years from the date of filing. A Chapter 13 case will stay on your credit report for seven years.

What Happens if I Don't Complete My Chapter 13 Plan?

If you stop making payments and take no further action, the bankruptcy court will dismiss your case without granting a discharge of your remaining debts. You'll remain responsible for paying them, plus any interest you would have incurred had you not filed. You'll also lose the protections of the bankruptcy stay, which means creditors can begin collecting. Additionally, if you refile, the automatic stay won't last as long. Other options include lowering the plan payment through modification and converting the case to Chapter 7.

What Is Chapter Conversion?

Life is unpredictable, and your financial situation can change. Fortunately, the bankruptcy system allows for the possibility of converting your case from one chapter to another under certain circumstances.

• Converting from Chapter 7 to Chapter 13. You realize you have nonexempt assets you want to protect, or you find that you earn too much for Chapter 7 bankruptcy. (11 U.S.C. § 706.)
• Converting from Chapter 13 to Chapter 7. You experience a drop in income or can't make your plan payments. However, you might lose property that you could protect in Chapter 13. (11 U.S.C. § 1307.)

What Are My Options Besides Bankruptcy?

While bankruptcy is an effective option for debt relief, it's also essential to be aware of other potential strategies. Consider exploring options such as debt consolidation, debt settlement, or mortgage modification programs, depending on your unique financial circumstances. A qualified financial advisor or attorney is in the best position to help you determine the best course of action for you.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we wholeheartedly encourage research and learning. You can find many more helpful bankruptcy articles on Nolo's bankruptcy homepage. Information needed to complete the official downloadable bankruptcy forms is on the Department of Justice U.S. Trustee Program website.

However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.