Chapter 7 vs. Chapter 13 Bankruptcy: What Is the Difference?

Chapter 7 and Chapter 13 are the two most common types of bankruptcy for individuals in the United States.

The biggest difference between Chapter 7 and Chapter 13 is that with Chapter 7, your assets may be liquidated, and you don’t have to make a plan to pay back your debt. With Chapter 13, you keep your assets and make a plan to repay your debt over time.

When to consider Chapter 7 or Chapter 13 bankruptcy

You might consider Chapter 7 or Chapter 13 bankruptcy if:

Your monthly consumer debt payments are greater than 50% of your monthly take-home pay.
You’re facing lawsuits from creditors.
You see no way to pay off your debt within five years.

» Learn more about when to consider bankruptcy options

Chapter 7 vs. Chapter 13 bankruptcy

Chapter 7 and Chapter 13 bankruptcy differ in the way debts are resolved, time to completion and eligibility requirements.

Most notably, with Chapter 13 bankruptcy, you’ll make a plan to repay all or an adjusted amount of your debts to creditors over time and will keep assets. With Chapter 7 bankruptcy, you won’t have to make a plan to pay back the debt, but may be required to have nonexempt assets sold and proceeds distributed to creditors.

Nonexempt property can include jewelry, or the equity in your house or car if it’s higher than your state’s exemption limit. However, the majority of individual Chapter 7 cases are “no asset” cases where there are no nonexempt items to liquidate. In these cases, the debt is typically discharged and creditors aren’t repaid.

Chapter 7 bankruptcy is usually best-suited for people who do not have a steady income, and Chapter 13 is best-suited for those who do.

» LEARN: How often can you file bankruptcy?

The table below outlines key differences between Chapter 7 and Chapter 13 bankruptcy.

Chapter 7	Chapter 13
Form of bankruptcy: Liquidation.	Form of bankruptcy: Individual debt adjustment.
Benefits: One of the fastest routes to resolve overwhelming debt. Filing a bankruptcy petition halts most collection efforts and legal action from creditors.	Benefits: Can help you resolve your debts while retaining certain assets or getting caught up on secured debts, like an auto loan or mortgage. Filing a bankruptcy petition halts collection efforts and legal action from creditors.
Drawbacks: Though rare, the trustee can sell nonexempt property. Generally for unsecured debt; does not protect from foreclosure or repossession.	Drawbacks: The length and cost of the repayment plan is challenging for many filers.
How long it takes to achieve a discharge: Usually under six months.	How long it takes to achieve a discharge: Usually three to five years, depending on the repayment plan.
Mark on credit report: Remains on your credit report for up to 10 years from filing date.	Mark on credit report: Remains on your credit report for seven years from filing date.
Eligibility: You must pass the means test, which looks at your income, expenses and family size. Cannot have had a previous Chapter 7 discharge in the past eight years, or a Chapter 13 in the past six years. Cannot have filed a bankruptcy petition (Chapter 7 or 13) in the previous 180 days that was dismissed for certain reasons, such as failing to appear in court or comply with court orders.	Eligibility: Combined total secured and unsecured debt must be less than $2,750,000. Must have regular income and be current on tax filings. Cannot have had a Chapter 13 filing in the past two years or Chapter 7 in the past four years. Cannot have filed a bankruptcy petition (7 or 13) in the previous 180 days that was dismissed for certain reasons, such as failing to appear or comply with court orders.

» LEARN: What is the bankruptcy means test?

Is it better to file Chapter 7 or Chapter 13?

Which form of bankruptcy is best for you depends on your financial situation and goals.

To determine whether Chapter 7 or Chapter 13 bankruptcy is right for you, consult with a bankruptcy attorney or a nonprofit credit counseling service. You’ll want to make sure that bankruptcy is the right solution for your debts, and that you're in a position to make the most of the fresh start that bankruptcy offers.

As you compare your options, consider the information below:

Most consumers filing for bankruptcy opt for Chapter 7

Chapter 7 bankruptcy is faster and cheaper than Chapter 13. Chapter 7 bankruptcy discharges, or erases, eligible debts such as credit card bills, medical debt and personal loans. But other debts, such as student loans and taxes, typically are harder to get discharged. Chapter 7 doesn’t offer a route to get caught up on secured loan payments, such as a mortgage or auto loan, and it doesn’t protect those assets from foreclosure or repossession.

In some instances, a bankruptcy trustee — an administrator who works with the bankruptcy courts to represent the debtor's estate — may sell nonexempt items, meaning belongings that are not protected during bankruptcy. Nonexempt items vary according to state law.

» Can you file bankruptcy on student loans?

Higher-wage earners may choose Chapter 13

Chapter 13 bankruptcy may be better for those who don’t qualify for a Chapter 7 filing, for instance, if their income is too high.

Some people who qualify for Chapter 7 may still choose to file for Chapter 13 because they want to retain certain assets or get caught up on their mortgage payments. However, Chapter 13 repayment plans are challenging: All disposable income after certain allowances has to be directed toward repaying debt over three to five years.

Both bankruptcy options will affect your credit

While a bankruptcy filing stays on your credit report for up to 10 years, you can use the opportunity to make a fresh start and take immediate steps to begin rebuilding your credit.

» Learn more about rebuilding credit after bankruptcy

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What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?