Chapter 7 vs Chapter 13 Bankruptcy: Which One You Qualify For and What Each Costs

When people talk about filing for bankruptcy, they are usually talking about one of two chapters of the federal bankruptcy code. Chapter 7 wipes out most unsecured debt quickly. Chapter 13 reorganizes debt into a multi-year repayment plan. Both options stop collection calls, lawsuits, and garnishments the moment you file, but they work very differently and not everyone qualifies for both.

The decision between the two is not always a matter of preference. Your income may determine which chapter you can use. Your assets may make one option far more protective than the other. Understanding how each chapter works is the starting point for deciding which path makes sense for your situation. Our bankruptcy calculator runs the means test and shows which chapter you qualify for.

What Chapter 7 Bankruptcy Does

Chapter 7 is called a liquidation bankruptcy, though most people who file lose nothing because most of what they own is protected by exemptions. The basic process is that a court-appointed trustee reviews your assets, sells anything that exceeds state or federal exemption limits, and distributes the proceeds to creditors. Whatever remains unpaid after that is discharged, meaning you no longer legally owe it.

The whole process typically takes three to five months from filing to discharge. That speed is one of Chapter 7's biggest advantages. You file, attend a brief meeting with the trustee, and a few months later you receive a discharge order eliminating credit card balances, medical debt, personal loans, and most other unsecured obligations.

The debts that Chapter 7 does not discharge include student loans in most cases, recent income tax debt, child support, alimony, and debts incurred through fraud. If your biggest debt is a student loan, Chapter 7 may provide less relief than you expect. If your biggest debts are medical bills and credit cards, a Chapter 7 discharge can be genuinely transformative.

The Means Test: Who Qualifies for Chapter 7

Congress added the means test to the bankruptcy code in 2005 to prevent higher-income people from using Chapter 7 to discharge debts they could actually afford to repay. If your income exceeds the median income for your state and household size, you have to pass a second stage of the means test that calculates your disposable income after certain allowed expenses.

The first stage is straightforward. If your current monthly income, averaged over the last six months, falls below your state's median income for a household of your size, you automatically pass and can file Chapter 7 without further means test analysis. Median income thresholds vary significantly by state. In 2025, the median income for a single-person household ranges from roughly $50,000 in lower-income states to over $80,000 in states like Connecticut and Massachusetts.

If you are above the median, the second stage calculates your monthly disposable income after subtracting allowed expenses from IRS national and local standards. If that number exceeds a certain threshold, you are presumed to be able to fund a Chapter 13 plan and may be barred from Chapter 7. An attorney can walk you through the full calculation before you file.

What Chapter 13 Bankruptcy Does

Chapter 13 is a reorganization bankruptcy that allows you to keep all your assets while repaying some or all of your debt over a three to five year plan. You propose a monthly payment to the court, the court confirms it if it meets certain legal requirements, and you make payments to a trustee who distributes funds to creditors according to a priority system.

The big advantage of Chapter 13 over Chapter 7 is that it lets you catch up on secured debt arrears. If you are behind on a mortgage and facing foreclosure, Chapter 13 can stop the foreclosure and let you spread the back payments over the length of your plan while continuing to make current mortgage payments. The same applies to car loans if you are behind and at risk of repossession.

Chapter 13 also provides broader protection for co-signers than Chapter 7, since the automatic stay in Chapter 13 can protect co-signers from collection attempts during the plan. If someone co-signed a loan with you and you want to protect them, that is a reason some people choose Chapter 13 even when they qualify for Chapter 7.

How Chapter 13 Payment Plans Are Calculated

Your Chapter 13 plan payment is based on your disposable income, which is what remains after subtracting allowed living expenses and secured debt payments from your monthly income. Priority debts like recent taxes and domestic support obligations must be paid in full through the plan. Secured debts like mortgage arrears or car payments get paid to whatever amount is needed to keep those assets. Whatever is left over after those obligations is distributed to unsecured creditors.

Unsecured creditors in Chapter 13 must receive at least as much as they would have received in a Chapter 7 liquidation. That is called the best interest of creditors test. If you have significant non-exempt assets, that floor can be meaningful. If your assets are mostly exempt, unsecured creditors might receive very little or nothing through your Chapter 13 plan.

Plans run three years if your income is below the state median, or five years if you are above it. Completing the full plan and receiving a discharge at the end eliminates any remaining unsecured debt not paid through the plan. If you miss payments or fall too far behind, the case can be dismissed or converted to Chapter 7.

Assets and Exemptions: The Hidden Factor in Choosing

Bankruptcy exemptions protect specific types of property from being taken by a Chapter 7 trustee. Common exemptions cover your home equity up to a certain amount, one vehicle up to a certain value, retirement accounts, basic household goods, and in some states tools of your trade. These limits vary enormously by state.

Texas and Florida have unlimited homestead exemptions, meaning no matter how much equity you have in your home, the trustee cannot take it in Chapter 7. In many other states, the homestead exemption is far more limited, sometimes capped at $25,000 or $75,000. If you have significant equity in a home above the exemption limit, Chapter 7 puts that equity at risk. Chapter 13, by contrast, lets you keep all your assets as long as your plan pays unsecured creditors at least what they would have gotten in Chapter 7.

This is why some people with significant home equity choose Chapter 13 even when they would qualify for Chapter 7. The math favors reorganization when protecting assets matters more than a quick discharge.

What Bankruptcy Actually Costs to File

The court filing fee for Chapter 7 is $338. For Chapter 13, it is $313. These fees can be waived if your income is below 150 percent of the poverty guidelines, or paid in installments if you cannot afford them upfront.

Attorney fees are the larger expense. For a Chapter 7 case with no significant complications, attorney fees typically run $1,200 to $2,500. Chapter 13 attorney fees are higher because the attorney handles the case over three to five years, attending confirmation hearings and addressing any plan modifications. Chapter 13 fees commonly range from $3,000 to $6,000, though courts in some districts have standard fee structures that cap what attorneys can charge.

Both chapters also require completing a credit counseling course before filing and a debtor education course before discharge. These courses cost $25 to $50 each from approved providers and take a few hours online or by phone.

How Bankruptcy Affects Your Credit

A Chapter 7 bankruptcy stays on your credit report for ten years from the filing date. Chapter 13 stays for seven years. Both cause significant short-term credit damage, but the impact fades over time and many people find their credit scores improving meaningfully within two to three years after a discharge.

The reason scores often improve relatively quickly is that the discharged debt no longer weighs on your debt-to-income ratio and the accounts show a zero balance. With no delinquent accounts dragging down your score and a clean slate on most debts, responsible behavior after bankruptcy can rebuild credit faster than many people expect.

Getting a mortgage after Chapter 7 typically requires a waiting period of two years for FHA loans and four years for conventional loans. After Chapter 13, the waiting period is shorter: one year after filing for FHA if you have been making plan payments on time, two years after discharge for conventional loans. Lenders want to see stable income and responsible credit use after the bankruptcy event.

When to Consider Chapter 7 vs Chapter 13

Chapter 7 is generally the better choice when your primary debts are unsecured, you do not have significant non-exempt assets to protect, you want a fast resolution, and you either pass the means test or your income is low enough that you automatically qualify. It is the cleaner, quicker option for people drowning in credit card and medical debt with few assets at stake.

Chapter 13 makes more sense when you are behind on a mortgage and want to save your home, when you have non-exempt assets worth protecting, when you have income tax debt or other priority debts that need to be paid in full, or when your income is too high to qualify for Chapter 7. It is also appropriate when you want to discharge debts that would survive Chapter 7, like certain property settlement obligations from divorce, by paying them through the plan.

Neither option is inherently better than the other. The right choice depends on your specific income, assets, debts, and goals. Speaking with a bankruptcy attorney who can analyze your individual situation will almost always produce a better outcome than guessing on your own. Many bankruptcy attorneys offer free or low-cost initial consultations.