The short answer: Chapter 7 wipes out most unsecured debts in a few months but requires you to pass an income test and risks losing property you can't protect with exemptions. Chapter 13 lets you keep your property and catch up on missed mortgage or car payments through a 3-to-5-year repayment plan, which is the better fit if you have steady income, are behind on a secured loan you want to keep, or earn too much to qualify for Chapter 7. Both are governed by the federal U.S. Bankruptcy Code, filed in federal bankruptcy court, and both immediately stop most collection activity through the automatic stay.
This is general information, not legal advice for your specific situation. Bankruptcy is one of the few areas of debt relief that is almost entirely federal, but state law controls a critical piece (your exemptions), so the right choice can differ depending on where you live.
The 30-Second Comparison
Both chapters are part of the same federal law and give you the same core protection the moment you file: the automatic stay under Bankruptcy Code Section 362, which legally halts most collection calls, lawsuits, wage garnishments, and foreclosure or repossession efforts while your case is open. The difference is in how the debt is resolved.
- Chapter 7 (liquidation): A court-appointed trustee can sell your non-exempt property to pay creditors, and most remaining unsecured debt is discharged (erased). Cases typically close in roughly 3-4 months. Most consumer filings are "no-asset" cases where the trustee sells nothing because everything is protected by exemptions.
- Chapter 13 (reorganization): You keep your property and pay a portion of your debt through a court-approved repayment plan lasting 3 or 5 years. At the end, qualifying remaining balances are discharged. You make one monthly payment to the trustee, who distributes it to creditors.
Who Qualifies for Chapter 7
Chapter 7 has an income screen called the means test. First, your household income is compared to the median income for a household of your size in your state. If you are below the median, you generally pass automatically. If you are above it, a second calculation looks at your disposable income after allowed expenses to decide whether you have enough left over to fund a Chapter 13 plan. The median figures and many expense standards are set by federal data and updated periodically, so do not rely on an old number you saw online.
Passing the means test is not the only hurdle. If you have valuable property you cannot fully protect with exemptions, a Chapter 7 trustee may sell it. That is why people with significant home equity sometimes choose Chapter 13 even when they qualify for Chapter 7.
Who Qualifies for Chapter 13
Chapter 13 is for people with regular income who can commit to a monthly plan payment. There are debt limits (caps on how much secured and unsecured debt you can have), and those caps are set by federal law and adjusted over time, so confirm the current figures rather than assuming. You also must be current on tax filings and able to show the court a feasible budget.
Chapter 13 is often the only option for filers who earn too much to pass the Chapter 7 means test, or who filed a Chapter 7 too recently to get another discharge.
What Happens to Your House and Car
This is usually the deciding factor.
If you are behind on your mortgage
Chapter 7 does not give you a way to force a lender to let you catch up on missed payments. If you are in foreclosure and want to keep the home, Chapter 13 is typically the better tool: you can spread the past-due amount (the "arrears") across your 3-to-5-year plan while staying current on your regular payment going forward, and the foreclosure is paused as long as you keep up.
If you are behind on a car loan
Chapter 13 lets you cure missed car payments over time and, in some cases, restructure the loan. Chapter 7 generally requires you to be current and "reaffirm" the debt to keep a financed vehicle, or surrender it.
Exemptions decide what you keep
Both chapters use exemptions to protect property such as home equity, a vehicle, household goods, retirement accounts, and tools of your trade. Here is where state law matters enormously: some states require you to use their exemption system, others let you choose between the state set and the federal set in the Bankruptcy Code. The protected amounts vary widely by state, so the same set of assets can be fully safe in one state and partly at risk in another. This varies by state, and it is the single biggest reason to get a local assessment before filing.
What Each Chapter Can and Cannot Erase
Neither chapter wipes out everything. Debts that generally survive bankruptcy include most recent taxes, domestic support obligations (child and spousal support), most student loans (absent a separate hardship showing), and debts from fraud or willful injury.
Chapter 13 can sometimes handle certain debts more flexibly than Chapter 7, including catching up on non-dischargeable items like back taxes and support over the life of the plan, and in limited situations reducing what you owe on some secured debts other than your primary home.