Bankruptcy Basics: Chapter 7 and Chapter 13 Compared

Bankruptcy is a federal process, handled by federal bankruptcy courts, that can give people with overwhelming debt a court-supervised way to deal with what they owe. The two most common types for individuals are Chapter 7 and Chapter 13. They work very differently, and the right choice depends on income, property, debts, and goals. This page explains the general differences. It does not tell anyone which chapter to file, and a lawyer who reviews your full situation is the right person to make that assessment.

Why bankruptcy is a federal process

Bankruptcy law is set by federal statute, so the basic framework is the same across the country. The federal judiciary's bankruptcy basics page lists the different chapters of the Bankruptcy Code and explains that the process takes place in federal court. State law still matters for certain issues, such as exemptions, which determine what property a person may keep, and those rules differ from state to state.

Chapter 7 in general

Chapter 7 is often described as a liquidation chapter. In a typical case, a trustee is appointed to review the filer's property. Most people with Chapter 7 cases keep their essential property because of exemptions, and many unsecured debts can be discharged, meaning the person is no longer legally required to pay them. The process is usually completed within months rather than years.

Chapter 7 is not available to everyone. Eligibility depends on income and on whether a court finds that the case meets certain requirements. Some debts are not discharged in Chapter 7, such as certain taxes, support obligations, and some student loans, and rules for specific debts can be technical.

Chapter 13 in general

Chapter 13 is a repayment plan for individuals with regular income. The official court description refers to it as an individual debt adjustment chapter. Under a plan, the filer keeps property and pays part of their debts over time, typically with a trustee collecting payments and distributing them to creditors. Plans are reviewed by the court, and they must be approved before they take effect.

Chapter 13 can help people who want to keep a home or car, catch up on past-due payments, or deal with debts that cannot be discharged in Chapter 7. The plan must be feasible, and missed payments can lead to dismissal of the case.

Key differences at a glance

• Goal: Chapter 7 generally discharges eligible debts, while Chapter 13 sets up a plan to repay part of them over time.
• Income: Chapter 7 has eligibility tests based on income, while Chapter 13 requires regular income to fund a plan.
• Property: Chapter 7 may involve selling non-exempt property, while Chapter 13 usually lets the filer keep property if the plan is confirmed.
• Length: Chapter 7 is generally shorter, while Chapter 13 plans typically run for several years.
• Costs: Filing fees, attorney fees, and trustee requirements differ, so ask for a full breakdown of costs.

These are general differences. The details of each case can change the outcome significantly.

Who each option may suit

People with few assets and debts that are mostly unsecured sometimes look at Chapter 7. People with regular income who want to keep a house or who face priority debts that must be paid sometimes look at Chapter 13. Some people consider other options first, such as negotiating with creditors, credit counseling, or a settlement plan.

Bankruptcy also has long-term effects on credit and on future financing. A lawyer can explain those effects in your situation, and you should understand them before you file.

Questions to ask a lawyer

• Based on my income and property, which chapter may be available to me?
• Which of my debts would be discharged, and which would not?
• What would happen to my home, car, or other important property?
• What are the total costs, including attorney fees, court fees, and any trustee payments?
• How would filing affect my credit, my job, and my ability to borrow later?
• What alternatives should I consider before filing?

Free and low-cost help

The federal courts publish general information about bankruptcy, and many bankruptcy courts have self-help resources. A legal aid office or a bar referral service may be able to point you to a consultation. Credit counseling agencies are sometimes required before filing, and a lawyer or the court can explain which agencies are approved.

Be cautious with anyone who promises that bankruptcy will be easy, guaranteed, or completed without a court process. Filing involves deadlines, forms, and court hearings, and mistakes can be costly.

When to speak with a lawyer

Talk with a bankruptcy lawyer before you decide, especially if a lawsuit, garnishment, or foreclosure is pending. A lawyer can explain whether filing might stop certain collection actions, but the effect of a filing depends on the facts. Our bankruptcy practice page can help you find a bankruptcy lawyer.

Frequently asked questions

Is bankruptcy the same in every state? The basic federal process is similar, but state exemption rules and some local practices differ. Ask a lawyer how your state's rules apply to your property.

Will I lose everything if I file Chapter 7? Many people keep most of their property because of exemptions. Whether any property is at risk depends on its value and the rules that apply.

Can I switch from Chapter 13 to Chapter 7 later? Sometimes, but the rules are technical and depend on the circumstances. Ask a lawyer before you assume a change is possible.

Does bankruptcy erase all debt? No. Some debts, such as certain taxes and support obligations, generally survive bankruptcy. Ask a lawyer which debts apply to you.

General information, not legal advice. Laws change and every case is different. Talk to a licensed attorney in your state about your situation.