Chapter 7 vs Chapter 13 Bankruptcy
Chapter 7 bankruptcy erases most unsecured debt (credit cards, medical bills, personal loans) in about 3 to 4 months, with no repayment plan, for filers who pass the means test (an income cutoff). Chapter 13 bankruptcy reorganizes debt into a 3 to 5 year repayment plan, which is how you stop foreclosure and keep a home or car you are behind on. The main difference: Chapter 7 wipes debt fast, while Chapter 13 restructures it so you can protect what you own.
The short answer
- Choose Chapter 7 if your income is below the state median and most of your debt is credit cards or medical bills. It is faster and cheaper.
- Choose Chapter 13 if you earn above the median, or you are behind on a mortgage or car you want to keep.
- Both stop collection calls, lawsuits, and wage garnishment the day you file.
| What you are comparing | Chapter 7 Liquidation | Chapter 13 Repayment plan |
|---|---|---|
| Best for | Lower income, mostly credit card and medical debt, and little to no property at risk | Behind on a house or car, steady income, or assets you want to protect |
| How long it takes | About 90 to 120 days from filing to discharge | 3 to 5 years while you complete the plan |
| Income limit / means test | Yes. You pass the means test or earn below the state median income | No income cap. There are debt limits, but most filers fall within them |
| Your house | Kept if you are current and your equity fits state exemptions | Kept, and you can catch up on missed payments to stop foreclosure |
| Your car | Kept if current and within exemption limits | Kept, with the chance to fold past-due payments into the plan |
| Which debts are erased | Credit cards, medical bills, personal loans, most judgments | Similar debts, but paid down through the plan first; remaining balances discharged at the end |
| Repayment required? | No. Qualifying debt is wiped out with nothing more to pay | Yes. One monthly plan payment for 3 to 5 years |
| Typical cost | Lower flat attorney fee, often paid up front | Often a lower amount to start, with much of the fee paid through the plan over time |
| Impact on credit | Score drops at first, then usually rebuilds within a couple of years | Similar rebuild, and on-time plan payments can help reestablish credit |
| How long on credit report | Up to 10 years from the filing date | Up to 7 years from the filing date |
General information only. Exemptions, eligibility, and timing depend on your state and your specific situation. We will walk you through your options in a free consultation.
What is Chapter 7 bankruptcy?
Chapter 7 is the fastest, most common form of consumer bankruptcy. It is sometimes called a liquidation, but for most people nothing actually gets sold. You file, the court appoints a trustee, and in about 90 to 120 days your qualifying debt is wiped out for good. There is no repayment plan and usually nothing more to pay once the case is filed.
The catch is the means test. Chapter 7 is meant for people whose income is below their state median, or who do not have enough left over each month to repay creditors. If you earn more than that, you may need to use Chapter 13 instead. The good news is that most people who feel buried in debt do qualify.
Chapter 7 is usually the better fit when:
- Most of your debt is credit cards, medical bills, or personal loans
- Your income is below the state median or you pass the means test
- You are current on your house and car, or you are ready to let them go
- You want the fastest possible fresh start
What is Chapter 13 bankruptcy?
Chapter 13 is a reorganization instead of an erasure. Rather than wiping out debt right away, you combine what you owe into a single monthly payment that runs for three to five years. At the end of the plan, most remaining unsecured balances are discharged. It takes longer than Chapter 7, but it gives you something Chapter 7 cannot: a way to catch up.
That makes Chapter 13 the right tool when you are behind on a mortgage or car loan and want to keep the property. The plan lets you spread the past-due amount over years while the automatic stay holds off foreclosure and repossession. It is also the path for people whose income is too high to pass the means test for Chapter 7.
Chapter 13 is usually the better fit when:
- You are behind on your mortgage and want to stop foreclosure
- You have a car loan you want to catch up on or restructure
- Your income is too high to qualify for Chapter 7
- You have assets you want to protect while paying down debt
Which should you choose, Chapter 7 or Chapter 13?
Here is the short version. If you mostly owe credit cards and medical bills, your income is modest, and you are not trying to save a house from foreclosure, Chapter 7 is usually the cleaner, faster choice. If you are behind on a mortgage or car and need time to catch up, or you earn too much to pass the means test, Chapter 13 is built for you.
In real life the line is not always obvious, and the right answer can come down to your exemptions, your equity, and how steady your income is. That is the part worth talking through with a lawyer before you file. We will look at your actual numbers and tell you honestly which chapter fits, even if the answer is that you should wait.
Not sure which one is right? A free consultation sorts it out fast.
How does the means test decide if you qualify for Chapter 7?
The means test compares your household income to the median income for the same household size in your state. Pennsylvania and New Jersey each publish their own figures, and they change a few times a year. If your income is below the median, you generally qualify for Chapter 7 outright.
If you are above the median, that is not the end of the road. A second calculation subtracts allowed living expenses to find your disposable income. If little is left over each month, you can still file Chapter 7. If there is enough to repay a meaningful share of your debt, the law points you to Chapter 13 instead. The test looks at the last six months of income, so a recent job loss or pay cut can change the answer quickly.
Which debts do neither chapter erase?
Bankruptcy wipes out most unsecured debt, like credit cards, medical bills, and personal loans. A few kinds of debt usually survive either chapter:
- Recent income taxes (older taxes can sometimes qualify)
- Child support and alimony
- Most student loans, unless you prove a hardship
- Court fines, criminal restitution, and debts from fraud
Here is where Chapter 13 still helps. Even when a debt cannot be erased, the plan gives you three to five protected years to pay it down at a pace you can manage, while the rest of your debt is handled at the same time.
What property can you keep? Exemptions in PA and NJ
Exemptions are the rules that protect your property from being sold. They are the reason the word liquidation scares people more than it should, because for most filers nothing is actually sold. Pennsylvania and New Jersey filers can usually use the federal exemption set, which protects equity in your home, a vehicle, household goods, tools of your trade, and a wildcard amount you can apply to anything.
Retirement accounts like a 401(k) or IRA are protected in both states. The practical result is that the large majority of Chapter 7 filers keep everything they own. If your equity happens to be larger than the exemptions allow, Chapter 13 lets you keep the property by paying that extra value through your plan instead of giving anything up. Exact dollar amounts change over time, so we confirm your exemptions before anything is filed.
What is the automatic stay, and what does it stop?
The automatic stay is the legal shield that goes up the instant your case is filed, in both Chapter 7 and Chapter 13. It forces creditors to stop almost all collection activity right away, including:
- Collection calls and letters
- Lawsuits, wage garnishment, and bank levies
- Foreclosure sales and vehicle repossession
That relief starts on day one, long before your case is finished. In Chapter 13 the stay does double duty, because it holds off foreclosure while your plan catches up the missed mortgage payments over time.
Chapter 7 vs Chapter 13 FAQ
Which is cheaper, Chapter 7 or Chapter 13?
Chapter 7 usually costs less overall because it wraps up in a few months and there is no multi-year plan to fund. Chapter 13 often has a lower amount due up front, since much of the attorney fee can be paid through the plan, but you are making payments for three to five years. We quote an affordable fee for either one in your free consultation, and qualifying Chapter 7 filers may be eligible for our $999 flat fee.
Will I lose my house in Chapter 7?
In most cases, no. If you are current on your mortgage and your equity fits within the exemptions, you keep your home in Chapter 7. The risk comes up when you have significant non-exempt equity. If you are behind on payments and want to catch up, Chapter 13 is usually the safer route. We review this with you before anything is filed.
Can I switch from Chapter 13 to Chapter 7?
Often, yes. Many filers start in Chapter 13 and convert to Chapter 7 later if their income drops or the plan becomes unaffordable, as long as they still qualify under the means test. It is a common move, and we handle the conversion for you when it makes sense.
How long does each one stay on my credit report?
A Chapter 7 filing can stay on your credit report for up to 10 years from the filing date. A Chapter 13 filing typically stays for up to 7 years. In both cases, scores often start to recover well before the bankruptcy drops off, especially once the debt is gone and you begin rebuilding.
Does filing either chapter stop collection calls and lawsuits?
Yes, and immediately. The moment we file, the automatic stay goes into effect for both Chapter 7 and Chapter 13. Creditors must stop calling, suing, garnishing wages, and foreclosing. That relief starts on day one, long before the case is finished.
What if I do not qualify for Chapter 7?
If your income is too high to pass the means test, Chapter 13 is usually the alternative. It does not have an income cap, and it still gives you a path to discharge debt and stop collection activity. We will tell you in the first call which option you actually qualify for.
Do I have to come into an office to file?
No. We handle Chapter 7 and Chapter 13 cases for clients across Pennsylvania and New Jersey entirely over phone and Zoom, from the first consultation to the signed filing. Most clients never need to visit an office.
Can my spouse and I file bankruptcy together?
Yes. Married couples can file a joint petition in either Chapter 7 or Chapter 13, which usually saves on fees and handles both spouses' debts at once. You can also file on your own if the debt is mostly in one name. We help you decide which approach protects your household best.
What happens to a co-signer when I file?
It depends on the chapter. In Chapter 7, your discharge wipes out your liability, but the creditor can still pursue a co-signer for the balance. Chapter 13 includes a co-debtor stay that can shield a co-signer on consumer debts while your plan is active, which is one more reason it can be the better fit when someone helped you on a loan.
Still not sure which chapter fits?
Tell us your situation and we will tell you honestly which path makes sense. Free consultation over phone or Zoom, no obligation.
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