Bankruptcy Chapter 7 vs. Chapter 13: Which One Is Right for Me?

Discover the differences between Bankruptcy Chapter 7 and Chapter 13, and find out which one is the right choice for you. Get expert insights, FAQs, and more in this informative guide.

Bankruptcy is a legal process that provides individuals and businesses with a fresh start when overwhelmed by debt. Two common forms of bankruptcy in the United States are Chapter 7 and Chapter 13. Understanding which one suits your financial situation is crucial. In this comprehensive guide, we will explore the key differences between Chapter 7 and Chapter 13 bankruptcy, helping you make an informed decision. If you have legal questions, don’t hesitate to visit for expert advice and resources.

Bankruptcy Basics

Before diving into the specifics, let’s cover some bankruptcy basics.

What Is Bankruptcy?

Bankruptcy is a legal process that allows individuals and businesses to discharge or restructure their debts when they can no longer afford to pay them.

The Role of Bankruptcy Chapters

Bankruptcy operates under various chapters in the U.S. Bankruptcy Code, each offering different solutions for debt relief. Chapters 7 and 13 are among the most commonly utilized.

Bankruptcy Chapter 7: Liquidation

Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.”

How Chapter 7 Works

  • Asset Liquidation: In Chapter 7, a trustee sells non-exempt assets to pay off creditors.
  • Quick Discharge: Typically, Chapter 7 cases are resolved within a few months.
  • Income Limits: Individuals must meet certain income criteria to qualify for Chapter 7.

Is Chapter 7 Right for You?

  • Minimal Income: If you have a low income and few assets, Chapter 7 may be suitable.
  • Quick Debt Relief: It provides a relatively swift discharge of unsecured debts like credit card bills and medical expenses.

Bankruptcy Chapter 13: Repayment Plan

Chapter 13 bankruptcy is known as “reorganization bankruptcy.”

How Chapter 13 Works

  • Debt Repayment Plan: Debtors create a 3-5 year plan to repay creditors.
  • Retaining Assets: You can keep your assets while catching up on missed payments.
  • Income Stability: Regular income is necessary for Chapter 13.

Is Chapter 13 Right for You?

  • Higher Income: If you have a steady income and want to protect valuable assets like your home, Chapter 13 may be the solution.
  • Debt Restructuring: It allows you to restructure secured debts, such as mortgages.

Key Differences


  • Chapter 7: Strict income limits.
  • Chapter 13: Requires a steady income.

Debt Discharge

  • Chapter 7: Quick discharge of unsecured debts.
  • Chapter 13: Repayment of debts through a plan.

Asset Retention

  • Chapter 7: Non-exempt assets may be sold.
  • Chapter 13: You can keep assets while repaying debts.


Can I Choose Between Chapter 7 and Chapter 13?

Yes, in most cases, you have the option to choose between the two chapters. However, eligibility criteria and your specific financial situation will play a significant role in determining the best choice.

Will Bankruptcy Ruin My Credit Forever?

No, while bankruptcy will affect your credit score, it is not permanent. Over time, with responsible financial management, you can rebuild your credit.

Are All Debts Dischargeable in Bankruptcy?

No, certain debts like child support, alimony, and most student loans are generally not dischargeable in bankruptcy.

What Happens to My Home in Bankruptcy?

In Chapter 7, if you cannot protect your home with exemptions, it may be sold to pay off creditors. Chapter 13 allows you to keep your home and catch up on missed mortgage payments over time.

Can I File for Bankruptcy Multiple Times?

Yes, but there are waiting periods between filings, depending on the chapter and previous discharges.

Do I Need an Attorney for Bankruptcy?

While it’s possible to file for bankruptcy without an attorney, it’s highly recommended to seek legal counsel to navigate the complex process successfully.


Choosing between Chapter 7 and Chapter 13 bankruptcy is a significant decision that requires careful consideration of your financial circumstances. It’s essential to consult with a bankruptcy attorney to ensure you make the right choice for your situation. Bankruptcy offers a fresh financial start, and with the right plan, you can regain control of your finances.

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