Bankruptcy 101: Chapter 7 vs Chapter 13 Explained
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Bankruptcy isn’t failure — it’s a legal reset baked into US financial law. Two main types apply to individuals. Here’s which one fits when.
Chapter 7: Liquidation
You give up non-exempt assets, and remaining unsecured debts are discharged. Most cases close in 4–6 months.
Who qualifies: Income below state median, or pass the means test Discharged: Credit cards, medical bills, personal loans, judgments NOT discharged: Student loans (usually), taxes (recent), child support, criminal fines Stays on report: 10 years Filing fee: ~$338 + attorney $1,500–3,500
Chapter 13: Reorganization
You keep your assets and follow a 3–5 year repayment plan to creditors. Best if you have steady income and want to save your home.
Who qualifies: Regular income; debt limits apply ($465k unsecured / $1.4M secured in 2026) How it works: Court-approved plan pays a portion of debts; remaining balance discharged at end Stays on report: 7 years Filing fee: ~$313 + attorney $3,000–5,000
Quick Decision Tree
- Below state income median + no major assets → Chapter 7
- Steady income + significant home equity to protect → Chapter 13
- Recent failed Chapter 7 (8-year wait) → Chapter 13 (can file 4 years later)
- Want to repay creditors over time but lower the total → Chapter 13
What Bankruptcy Doesn’t Do
- Wipe out student loans (with rare exceptions for hardship)
- Erase taxes less than 3 years old
- Cancel child support or alimony
- Remove liens on property (just personal liability)
After Filing
- Year 1: Get credit-builder loan, secured card. Don’t expect prime credit yet.
- Year 2–3: FICO often back to 650+
- Year 4–5: Mortgages possible (FHA 2 years post-discharge, conventional 4 years)
Alternatives Worth Trying First
- Debt management plan (DMP) through non-profit counseling
- Negotiated settlements with each creditor
- Selling non-essential assets to pay down debt
- Income-driven repayment plans for student loans
⚠️ Hire an Attorney: Filing pro se (without lawyer) has ~50% case dismissal rate. Lawyer fees pay for themselves in case quality.