Chapter 7 vs. Chapter 13 Bankruptcy: A Side‑by‑Side Comparison of Two Common Debt Relief Paths

For individuals struggling with overwhelming debt, bankruptcy can offer a path toward financial stability. The two most common consumer bankruptcy options—Chapter 7 and Chapter 13—provide different forms of relief depending on your income, assets, and long‑term goals. Understanding how they compare can help you make an informed decision about which path may be right for your situation.

What Is Chapter 7 Bankruptcy?

Often called “liquidation bankruptcy,” Chapter 7 is designed to help individuals discharge most unsecured debts, such as credit cards and medical bills, relatively quickly. In many cases, filers can keep most or all of their property through California’s generous exemption system.

Key Features of Chapter 7

• Speed: The process typically takes three to five months.
• Debt relief: Most unsecured debt is discharged.
• Eligibility: Requires passing an income‑based “means test.”
• Asset treatment: Non‑exempt assets, if any, may be sold by a trustee to repay creditors.
• Best for: Individuals with limited income, few assets, and significant unsecured debt.

What Is Chapter 13 Bankruptcy?

Known as “reorganization bankruptcy,” Chapter 13 allows individuals to create a three‑ to five‑year repayment plan based on their income. Instead of liquidating assets, filers keep their property and repay some or all of their debts through the court‑approved plan.

Key Features of Chapter 13

• Repayment plan: A structured payment plan lasting three to five years.
• Asset protection: Filers keep all assets, including non‑exempt property.
• Catching up: Allows repayment of mortgage arrears, taxes, and other critical debts.
• Flexibility: Can help stop foreclosure, vehicle repossession, and wage garnishment.
• Best for: Individuals with steady income, valuable assets, or past‑due secured debts.

Side‑by‑Side Comparison

Feature	Chapter 7	Chapter 13
Typical Duration	3–5 months	3–5 years
Type of Relief	Discharge of most unsecured debts	Repayment plan with potential discharge after completion
Income Requirements	Must pass means test	No means test; must have regular income
Asset Impact	Non‑exempt assets may be sold	All assets retained
Stopping Foreclosure	Temporarily via automatic stay	Yes—can repay arrears over time
Secured Debt (e.g., mortgage, car loan)	Generally cannot catch up on missed payments	Can cure arrears through repayment plan
Credit Impact	Chapter 7 stays on credit report for 10 years	Chapter 13 stays on credit report for 7 years

Which Bankruptcy Option Is Right for You?

Your financial goals, income level, and assets play a significant role in determining which chapter is the better fit.

Choose Chapter 7 If You:

• Have mostly unsecured debt
• Have limited or no disposable income
• Do not own significant non‑exempt assets
• Want a faster fresh start

Choose Chapter 13 If You:

• Have reliable income to support a repayment plan
• Want to keep non‑exempt property
• Need time to catch up on missed mortgage, car, or tax payments
• Previously filed Chapter 7 and aren’t eligible to file again yet

Final Thoughts

Both Chapter 7 and Chapter 13 can offer meaningful relief to individuals facing financial hardship. The right choice depends on your unique circumstances and long‑term goals. Speaking with an experienced bankruptcy attorney can provide clarity, help you evaluate your options, and guide you through the process with confidence.