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Chapter 7 vs. Chapter 13 Bankruptcy: The Basics

Personal bankruptcy in the US almost always means Chapter 7 or Chapter 13. Here is what actually separates them.

Chapter 7 is liquidation bankruptcy

A bankruptcy trustee can sell (liquidate) a debtor's non-exempt assets to pay creditors, and most qualifying unsecured debts are then discharged. Cases are typically resolved in a matter of months rather than years.

Chapter 13 is a repayment-plan bankruptcy

Instead of liquidating assets, the debtor keeps their property and follows a court-approved repayment plan that typically runs three to five years, paying back some or all debts before any remaining qualifying balance is discharged.

The "means test" often decides which chapter applies

Chapter 7 eligibility is generally filtered by comparing the filer's income to their state's median income for a similar household size. Filers whose income is too high to pass this test are typically steered toward Chapter 13 instead.

Filing either chapter triggers an automatic stay

As soon as a bankruptcy case is filed, an "automatic stay" generally halts most collection calls, wage garnishments, and pending lawsuits from creditors while the case is active, offering immediate breathing room.

Exemption laws protect certain property from liquidation

State or federal exemption rules (depending on the state and its rules) typically shield some amount of home equity, a vehicle, retirement accounts, and basic personal property from being sold in a Chapter 7 case.

Not every debt disappears

Certain obligations generally survive both chapters, including most child support and alimony, many recent tax debts, and β€” with only narrow exceptions β€” most student loans, regardless of which chapter is filed.

It stays on your credit report for years

A Chapter 7 filing can generally remain on a credit report for up to 10 years, and a Chapter 13 filing for up to 7 years, though the impact on a credit score typically fades well before the listing itself disappears.

Credit counseling is a mandatory step

Federal law generally requires completing an approved credit counseling course shortly before filing, and a separate financial management course before any debt is officially discharged.

Why two different chapters exist

Chapter 7 and Chapter 13 exist to serve different situations: Chapter 7 is built for filers with little disposable income and few non-exempt assets, while Chapter 13 is built for filers with steady income who want to keep specific property (like a home facing foreclosure) by catching up on debt through a structured plan instead.

Bankruptcy is a serious, court-supervised legal process

Both chapters involve a federal bankruptcy court, a court-appointed trustee, and specific legal deadlines and paperwork. Because the details of eligibility, exemptions, and dischargeable debts are fact-specific and vary by state, most filers work with a bankruptcy attorney rather than navigating the process alone.

Frequently Asked Questions

Does bankruptcy erase all of my debt?

No. Some obligations, such as most child support, many recent tax debts, and most student loans, generally are not discharged in either Chapter 7 or Chapter 13.

Will I definitely lose my house or car if I file?

Not necessarily. Exemption rules can protect some home and vehicle equity in Chapter 7, and Chapter 13 is specifically designed to let filers keep property while catching up on payments through the plan.

How long does a bankruptcy case take?

A Chapter 7 case is often resolved within a few months, while a Chapter 13 case typically runs on a three-to-five-year repayment plan before remaining eligible debt is discharged.

Do I need a lawyer to file for bankruptcy?

It is not always legally required, but the rules around exemptions, the means test, and dischargeable debts are complex and vary by state, so most people filing use a bankruptcy attorney.