Chapter 7 vs. Chapter 13: the two kinds of personal bankruptcy
When people talk about personal bankruptcy, they almost always mean either Chapter 7 or Chapter 13. Both can stop collections, but they work very differently, and there isn’t a single path forward that’s right for everyone.
Key takeaways
- Chapter 7 takes about four months to eliminate unsecured debt, and you don’t have a repayment plan.
- Chapter 13 gives you a three- to five-year repayment plan and lets you keep property that you’d probably lose under Chapter 7 (boats, second homes, etc.).
- Your income is the biggest deciding factor between the two chapters (Chapter 13 is for higher earners).
- Chapter 13 is often the better choice if you're behind on a mortgage or car loan and want to keep it.
Here's how they compare.
Chapter 7
Chapter 7 involves liquidating assets to repay your creditors and then discharging debts that can’t be repaid. A court-appointed trustee reviews what you own. Anything that isn't protected by exemptions could be sold to pay your creditors. Most people who file Chapter 7 don't lose anything, because their assets are exempt (primary homes and vehicles, for instance).
- How long it takes: It usually takes about four months from filing to discharge (the court order that erases your debts). About a month after filing, you'll attend a short meeting with the trustee. Creditors are allowed, but they don’t usually show up.
- Who it's for: People with limited income and few assets who need a clean slate. You'll need to pass the means test, which compares your income with the median income in your state.
- What happens to your house and car: You can keep them if you're current on payments and your equity is protected. If you're behind, Chapter 7 can only delay foreclosure or repossession, not stop it.
- How often you can file: You have to wait eight years after a Chapter 7 discharge before getting another one.
Chapter 13
Chapter 13 is sometimes called a "wage earner's plan." Instead of selling property, you propose a plan to repay part of your debts over three to five years. You make one monthly payment to a trustee, who pays your creditors. At the end, most remaining unsecured debt is erased.
- How long it takes: Three years if your income is below your state's median, and usually five years if it's above.
- Who it's for: People with steady income who earn too much for Chapter 7, are behind on a home or car, or have property they'd lose in Chapter 7.
- What happens to your house and car: This is Chapter 13's big advantage. You can spread missed mortgage or car payments over the life of your plan and keep the property, as long as you stay current going forward.
- Other perks: Chapter 13 can also help you catch up on tax debts and past-due child support over time.
- Debt limits: Chapter 13 is only for people with debts below certain limits. Currently, that's $526,700 in unsecured debt and $1,580,125 in secured debt.
Side by side
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Length | About 4 months | 3 to 5 years |
| Repayment plan | No | Yes |
| Income limit | Must pass means test | Must have steady income |
| Saves a home in foreclosure | No | Often |
| On credit report | 10 years | 7 years |
| Court filing fee | $338 | $313 |
Which one is more common?
Chapter 7 is the more common choice because it's faster and simpler. However, many Chapter 13 plans don't finish, often because a job loss or emergency makes payments impossible.
Can you switch?
Sometimes. A Chapter 13 case can be converted to Chapter 7 if your income drops and you qualify. A Chapter 7 case can sometimes be converted to Chapter 13 if you need more time to catch up on a secured debt.
What this is
Why it matters
What it means for you
What to do next
Sources
Related FAQs
Common questions about this topic, answered simply.
Do I have to pay back anything in Chapter 7?
No, not usually. You only lose property that isn't protected, and most filers don't have any.
Can married couples file together?
Yes, spouses can file a joint case in either chapter.
Which chapter costs more?
Chapter 13 usually costs more. Attorney fees are higher because the case lasts years, but a lot of those can be paid through your plan instead of upfront.
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