Turbo Takeaways

Filing for bankruptcy is a major decision with long-term consequences for your credit and finances. It’s also a complicated process that requires you to do a lot of research and consult with a bankruptcy attorney. The two major options you have when filing bankruptcy are Chapter 7 and Chapter 13, and each of them helps you deal with debt in different ways.

Chapter 7 vs Chapter 13 Bankruptcy: Which is Right for You?

Deciding between Chapter 7 vs. Chapter 13 bankruptcy will depend on a number of factors, such as the nature of your debts, how much income you have, and what assets you have. 

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy” since it involves the sale of your assets to repay your creditors, can help you clear some, or even all of your secured debt.  After that, any remaining unsecured debts, including credit cards and medical bills, are typically discharged (wiped out), meaning you are no longer legally obligated to pay them.. Certain types of debt, however, like student loans and child support, are typically not dischargeable.

Chapter 13 is also known as reorganization bankruptcy. With this type of bankruptcy, you may be able to retain your property while repaying some of your debt through a repayment plan, typcially over a period of three to five years. At the end of the repayment plan, remaining unsecured debts may be partially or fully discharged.

Factors to Consider

Given the choice, most people prefer Chapter 7 since it’s cheaper and faster compared to Chapter 13. But, qualifying for Chapter 7 is also more difficult because you’ll have to pass a means test, which analyzes your family size, income, and expenses. 

Pre-bankruptcy credit counseling is often the next required step for debtors filing under Chapter 7. These courses are usually offered by nonprofit credit counseling agencies, who look at your financial situation to determine if there are other avenues (debt consolidation, debt settlement, etc) that could resolve the issue without having to file bankruptcy.  If it’s determined bankruptcy is indeed your best solution, you must file a petition for bankruptcy at the local bankruptcy court.

Here are a few factors you should consider when comparing the two options:

  • Your disposable income. If you have little to no disposable income, that if one of the primary factors that may help you pass the means test, and you may be eligible for Chapter 7 bankruptcy.
  • IHowever, if your income is too high, Chapter 13 may be a better choice.
  • Your assets. If you have a lot of secured debts, such as auto loans and mortgages, Chapter 13 may be a better choice because it allows you to restructure and catch up on these debt payments. This means you may be able to avoid repossession or foreclosure on those assets.  
  • If you mainly have unsecured debts, such as personal loans and credit card bills, Chapter 7 may be the better choice.

Seeking Professional Advice

Consult a bankruptcy attorney to help you decide between Chapter 7 and. Chapter 13. Seeking help from a qualified debt relief professional can also help you decide if bankruptcy is the right option for your debt problems or if it would be better to consider other debt relief options first.

A bankruptcy lawyer can also explain federal and state laws for each type of bankruptcy in your specific state. They’ll explain the differences between Chapter 7 and Chapter 13, review your eligibility, and explain how your specific assets may be affected.

Chapter 7 vs. 13: What Are the Differences?

One of the best ways to determine which type of bankruptcy you should pursue is by comparing each option in terms of eligibility requirements, costs, and the time it takes to complete the process.

Eligibility Requirements

Chapter 7 bankruptcy is usually harder to qualify for than Chapter 13. Here’s a detailed look at the conditions you need to satisfy to qualify for each type of bankruptcy.

Chapter 7:

  • You must be able to pass the means test based on your family size, income, and expenses.
  • Applicants for Chapter 7 must complete a debt counseling course with an approved credit counseling agency no more than 180 days before filing.
  • You must not have filed a bankruptcy petition that the court dismissed in the last 180 days.
  • You must not have had a previous Chapter 13 bankruptcy in the last six years or filed a Chapter 7 bankruptcy in the last eight years.

Chapter 13:

  • Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief, as long as the individual's combined total secured and unsecured debts are less than $2,750,000 as of the date of filing for bankruptcy relief. Source: 11 U.S.C. § 109(e).
  • You must have filed tax returns regularly, and must not have any past-due Federal or State income taxes
  • You must have a regular income.
  • You must not have filed a bankruptcy petition that the court dismissed in the last 180 days.
  • You must not have had a previous Chapter 13 bankruptcy in the past two years or a Chapter 7, 11, or 12 in the past four years.
  • You must not have unsecured debt of over $465,275 or secured debt of over $1,395,875, for cases filed between April 1, 2022 and March 31, 2025.  

How Long Does it Take

Chapter 7 bankruptcy can usually discharge your debts much faster than Chapter 13. Typically, it takes under six months to achieve a discharge from the date you file a petition in court. 

Chapter 13 bankruptcy generally takes 90-120 days from the filing of your petition to the approval of your proposed repayment plan.  The rest of the process involves a repayment plan of three to five years, so it may take you that much time to achieve a final discharge of your case.

What are the Costs?

There are two main costs involved when you file for bankruptcy are petition fees and attorney fees. If you’re filing for Chapter 7 bankruptcy, you’ll need to pay a petition fee of $338. For Chapter 13, the petition fee is $313, as of December 2020. You’ll also be required to attend credit counseling sessions, which may cost anywhere from $10-$50 per session.

A major expense that you need to account for is attorney fees. Attorneys may charge anywhere from $750 to $4,500, depending on the type of bankruptcy you’re filing and the complexity of your case. It’s worth noting that while this may be a large expense, it’s worth paying this fee for sound legal advice. Filing bankruptcy on your own is not recommended.  

Pros and Cons of Chapter 7 Bankruptcy

Chapter 7 and Chapter 13 both offer several benefits, depending on what you hope to achieve through bankruptcy. Let’s take a look at the pros and cons of Chapter 7 bankruptcy.


  • Chapter 7 bankruptcy process is fast. Your debt may be discharged in under six months once you file the bankruptcy case.
  • After the bankruptcy filing, your creditors will need to stop the legal action, such as wage garnishment and collection efforts, due to an automatic stay.
  • Chapter 7 can wipe off most unsecured debts, including personal loans, payday loans, and credit card debt.
  • You’ll get a fresh start.
  • Unlike debt that is forgiven, discharged debt is not taxable to you as any kind of income or capital gain.


  • Chapter 7 is usually for unsecured debt and may not protect you from repossession or foreclosure.
  • Bankruptcy may not discharge all of your debts. You’ll still need to pay child support, alimony, tax debt, and student loans.
  • It’s difficult to be eligible for Chapter 7 due to the strict means test criteria.
  • Although it’s rare, the bankruptcy trustee may sell a non-exempt property.

Pros and Cons of Chapter 13 Bankruptcy

While Chapter 13 is easier to qualify for, it does have some other drawbacks. Consider the pros and cons listed below before you decide if this is the right option for you.


  • Chapter 13 can help you catch up with secured debts, such as mortgage and auto loans.
  • It can help you resolve some of your debts while still retaining some assets.
  • Once you file for your petition for bankruptcy, collection calls and legal actions from your lenders must stop, immediately.


  • The cost and length of the repayment plan may be difficult for many borrowers.
  • A recent survey completed by a well-known publisher of legal articles showed that only 52% of those they surveyed actually completed their Chapter 13 plan, while 48% ended up having their cases dismissed for failure to adhere to the court’s requirements. 
  • The court will discharge your debt only if you meet or complete the court’s petition requirements and strictly adhere to a repayment plan of three to five years.
  • It doesn’t provide you immediate relief, nor does it guarantee permanent relief, from your debt.

How Filing for Bankruptcy Affects Credit Scores and Credit History

When deciding between Chapter 7 vs. Chapter 13 bankruptcy, an important point to consider is how each of these options will affect your credit score and credit history.  

Impact on Credit Scores

Chapter 7 and Chapter 13 will both have a negative impact on your credit score. That being said, it’s important to remember that if you’re contemplating bankruptcy, it’s likely that your credit score is already damaged. Regardless of the form of bankruptcy you choose, expect your credit score to take a significant hit.

Credit scores are not the same for everyone, so it’s difficult to precisely say how much it will be affected because there are a lot of factors involved. For example, you may see your credit score reduce by 150 points when you file for Chapter 7, while someone else may see it fall by 200 points when they file for Chapter 13. This primarily depends on the specific information that is provided by your creditors to the credit reporting agencies.

Impact on Credit History

Chapter 7 bankruptcy stays on your credit report for a minimum of ten years, and Chapter 13 stays for a minimum of seven years. It may seem like Chapter 7 is worse for your credit history, but it’s also important to remember that with this option, your unsecured debt will be wiped out. This means you can start focusing on rebuilding your credit immediately.

With Chapter 13, you’ll have a repayment plan, and you’ll still have some debt. This means that a lender may see that despite the bankruptcy, you still paid off some of your loans, a fact that can work in your favor when getting your credit reports back in shape. Regardless of the type of bankruptcy you file, its impact will lessen over time as you start rebuilding your credit.

The Bottom Line on Chapter 7 Vs. Chapter 13 Bankruptcy

Bankruptcy is a legal process with major consequences. It is very important for a debt relief seeker to learn more about the respective processes and requirements for filing Chapter 7 and Chapter 13, how they differ, and which one fits your current financial situation better. It is always a good idea to consult a reputable law firm that specializes in bankruptcy proceedings to determine if this process is your best option for seeking debt relief in the first place, and help you decide which type of bankruptcy is most appropriate for your situation. Many law firms offer a free consultation, so you can use the opportunity to ask any questions you may have.