How to Choose Between Chapter 7 and Chapter 13 Bankruptcy

Learn the key differences between Chapter 7 and Chapter 13 bankruptcy to understand which option might fit your situation.

  1. Check if you qualify for Chapter 7. Chapter 7 has a means test based on your state's median income. If your household income is below the median, you likely qualify. If above, you'll need to pass a complex calculation of disposable income. Most people who qualify choose Chapter 7 because it's faster and eliminates debt completely.
  2. Understand what you'll lose in Chapter 7. Chapter 7 is liquidation bankruptcy — you'll lose non-exempt assets. Most states let you keep your primary home (up to a certain equity amount), basic car, retirement accounts, and household items. You'll lose luxury items, second homes, expensive cars with high equity, and non-retirement investment accounts.
  3. Consider Chapter 13 if you want to keep assets. Chapter 13 lets you keep all your property but requires a 3-5 year repayment plan. You'll pay back a portion of your unsecured debts (credit cards, medical bills) based on your disposable income. This works if you have steady income and want to save your home from foreclosure or keep valuable assets.
  4. Compare the time and cost differences. Chapter 7 takes 3-6 months and costs $300-400 in court fees plus attorney fees. Chapter 13 takes 3-5 years, costs $235-310 in court fees, but requires ongoing trustee payments (typically 6-10% of your plan payments). Chapter 13 is more expensive overall but spreads the cost over time.
  5. Factor in which debts get eliminated. Both chapters eliminate most credit card debt, medical bills, and personal loans. Neither eliminates recent taxes, student loans, child support, or recent luxury purchases. Chapter 13 can help with mortgage arrears and car loan catch-up payments that Chapter 7 cannot address.
  6. Consult a bankruptcy attorney for your specific situation. Bankruptcy law varies significantly by state and depends on your exact financial situation. An attorney can run the means test, evaluate your assets under your state's exemptions, and determine which chapter serves your goals. Many offer free consultations to explain your options.