Chapter 7 vs Chapter 13: Which Bankruptcy Is Right for You in 2026?
Chapter 7 and Chapter 13 are the two personal bankruptcy chapters, and choosing between them is the single biggest decision most filers make. They work in fundamentally different ways — one wipes out debt quickly by liquidating what’s not exempt, the other reorganizes it into a multi-year repayment plan. Here’s how to tell which one fits your situation.
The core difference
Chapter 7, sometimes called “liquidation” bankruptcy, discharges most unsecured debts — credit cards, medical bills, personal loans — typically within three to six months, with no repayment plan involved for those debts. In exchange, a trustee has the authority to sell any of your assets that aren’t covered by your state’s exemptions, though in the large majority of consumer cases, filers have no significant nonexempt assets and the case is a “no-asset” case where nothing is actually sold. Chapter 13, by contrast, is a reorganization: you keep your property and instead commit to a court-approved repayment plan lasting three to five years, paying creditors some or all of what you owe based on your income and expenses, with any remaining eligible unsecured debt discharged at the end of the plan.
Eligibility: the means test
You can’t simply choose Chapter 7 if your income is too high. The bankruptcy means test compares your household income over the prior six months to your state’s median income for a household of your size, published periodically by the U.S. Trustee Program. If you’re under the median, you generally qualify for Chapter 7 outright. If you’re over it, a second calculation subtracts allowed expenses from your income to see if you have enough leftover disposable income to fund a Chapter 13 plan — if you do, you’re typically required to file Chapter 13 instead of Chapter 7, or your Chapter 7 case can be challenged as abusive. There’s no upper income limit for Chapter 13, though it has its own eligibility caps on total secured and unsecured debt.
What happens to your property
In Chapter 7, only nonexempt assets are at risk, and exemptions cover home equity up to a state-set limit, a vehicle up to a limit, retirement accounts (generally fully protected), and everyday household goods. If you’re behind on a mortgage or car loan, Chapter 7 doesn’t give you a mechanism to catch up — you either get current, reaffirm and keep paying, or lose the asset to foreclosure or repossession once the case closes. Chapter 13 is specifically built to let you catch up on secured debt arrears through the plan while keeping the property, which is the main reason people who are behind on a mortgage or car loan and want to keep it choose Chapter 13 over Chapter 7.
Cost and timeline
Chapter 7 is faster and generally cheaper — most cases resolve in three to six months, and attorney fees, when used, tend to be lower because there’s less ongoing court involvement. Chapter 13 requires a three-to-five-year commitment to the plan, ongoing trustee oversight of your finances during that period, and attorney fees are typically higher to reflect that extended representation, though many attorneys allow those fees to be paid through the plan itself rather than upfront.
What debts survive either way
Neither chapter discharges everything. Most student loans (absent a successful undue-hardship claim), recent tax debt, child support, alimony, and debts from fraud or certain willful injury typically survive both Chapter 7 and Chapter 13. Chapter 13 does discharge a slightly broader category of debts at plan completion than Chapter 7 does, which occasionally matters for specific debt types like certain divorce-related property settlement obligations.
Which one is right for you
Chapter 7 tends to fit filers with primarily unsecured debt, income under the state median, and no significant nonexempt assets or mortgage/car arrears to catch up on — it’s the faster, cleaner path when it’s available. Chapter 13 tends to fit filers with income too high for Chapter 7, a home or car they’re behind on and want to keep, or nonexempt assets they want to protect by paying creditors their value over time instead of losing the asset outright. Some filers also choose Chapter 13 specifically to stop a foreclosure or repossession already in motion, since the automatic stay combined with a repayment plan gives more room to catch up than Chapter 7 does.
Getting help deciding
Because the means test calculation and exemption planning both involve real math specific to your state and finances, most bankruptcy attorneys offer a free or low-cost initial consultation specifically to help you figure out which chapter fits before you commit to either one. If your case is financially simple, free tools and legal aid clinics can also help confirm eligibility, but for anything involving a house, a business, or debt near the eligibility caps, professional guidance is worth getting before you file.