If you’re struggling with overwhelming debt, filing for bankruptcy can offer a fresh financial start. But many people don’t know the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy — the two most common types of personal bankruptcy in the United States.
Understanding how each option works can help you decide which path is right for your financial situation.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also called liquidation bankruptcy, helps people eliminate most unsecured debts quickly.
In this type of bankruptcy, a court-appointed trustee may sell certain non-exempt assets to repay creditors. However, many people keep most or all of their property because of state and federal bankruptcy exemptions.
Debts Typically Discharged in Chapter 7
- Credit card debt
- Medical bills
- Personal loans
- Utility bills
Key Features of Chapter 7
✔ Fast process (usually 3–6 months)
✔ Most unsecured debts wiped out
✔ No repayment plan required
❌ May lose non-exempt property
❌ Income limits apply (means test)
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What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, often called reorganization bankruptcy, allows you to keep your property while repaying part of your debt over time.
You create a court-approved repayment plan lasting 3 to 5 years. At the end of the plan, remaining eligible debts may be discharged.
Key Features of Chapter 13
✔ Keep your home and car (in most cases)
✔ Catch up on missed mortgage or car payments
✔ Stops foreclosure and repossession
❌ Requires steady income
❌ Long repayment period (3–5 years)
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Chapter 7 vs Chapter 13: Side-by-Side Comparison
| Feature | Chapter 7 Bankruptcy | Chapter 13 Bankruptcy |
|---|---|---|
| Also Called | Liquidation | Reorganization |
| Length | 3–6 months | 3–5 years |
| Debt Repayment | No repayment plan | Structured repayment plan |
| Property Risk | Some assets may be sold | Usually keep your assets |
| Income Requirement | Must pass means test | Must have regular income |
| Stops Foreclosure | Temporarily | Yes, allows catch-up payments |
| Credit Impact | Stays on report 10 years | Stays on report 7 years |
Who Should Consider Chapter 7?
Chapter 7 may be better if you:
- Have low income
- Have mostly unsecured debt (credit cards, medical bills)
- Don’t own expensive property or have significant assets
- Need fast debt relief
This option gives a fresh financial start quickly, but you must qualify under the bankruptcy means test.
Who Should Consider Chapter 13?
Chapter 13 may be better if you:
- Are behind on mortgage or car payments
- Want to stop foreclosure or repossession
- Have valuable property you want to protect
- Have a steady income to make monthly payments
This option helps you reorganize debt without losing assets.
Costs of Chapter 7 vs Chapter 13
| Cost Type | Chapter 7 | Chapter 13 |
|---|---|---|
| Court Filing Fee | Lower | Higher |
| Attorney Fees | Usually lower | Usually higher |
| Total Cost Over Time | Less expensive | More expensive due to repayment plan |
However, the right choice depends more on your financial goals than just cost.
Impact on Your Credit Score
Both Chapter 7 and Chapter 13 bankruptcy will hurt your credit score at first. However, many people see credit improvement within 1–2 years if they rebuild responsibly.
- Chapter 7 remains on credit reports for 10 years
- Chapter 13 remains for 7 years
Despite this, bankruptcy can sometimes improve your financial life faster than struggling with unpaid debts for years.
Final Verdict: Chapter 7 vs Chapter 13 Bankruptcy
There is no “one-size-fits-all” answer.
- Choose Chapter 7 if you need fast relief and don’t have many assets.
- Choose Chapter 13 if you want to protect your home, car, or other valuable property and can afford a repayment plan.
👉 The smartest step is to speak with a qualified bankruptcy attorney who can evaluate your income, debts, and goals before you file.