What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 liquidates non-exempt assets and discharges most unsecured debts in 3–6 months. Chapter 13 creates a 3–5 year court-supervised repayment plan that lets you keep assets while catching up on secured debt. Chapter 7 is for lower-income filers who pass the means test; Chapter 13 is for those with regular income who want to protect property.

How much does it cost to file bankruptcy in 2026?

Filing fees are $338 for Chapter 7 and $313 for Chapter 13. Attorney fees add $1,000–$3,500 for Chapter 7 and $2,500–$6,000 for Chapter 13. Fee waivers are available for Chapter 7 filers whose income is below 150% of the federal poverty line.

Does bankruptcy stop creditor calls and lawsuits immediately?

Yes. Filing bankruptcy triggers an automatic stay, which immediately halts all collection activity — phone calls, letters, lawsuits, wage garnishments, and foreclosure proceedings (temporarily). The stay takes effect the moment you file, not when the court notifies creditors.

What debts cannot be discharged in bankruptcy?

Student loans (in most cases), child support and alimony, recent income tax debts (taxes due within 3 years), court-ordered restitution, and debts incurred through fraud or DUI cannot be discharged in either Chapter 7 or Chapter 13.

How long does bankruptcy stay on your credit report?

Chapter 7 stays on your credit report for 10 years from the filing date. Chapter 13 stays for 7 years. Despite this, most filers see credit score improvement within 1–2 years as discharged debts are removed and they rebuild with secured cards or credit-builder loans.

Can I keep my house and car if I file bankruptcy?

In Chapter 13, yes — you can keep both as long as you continue making payments and your equity is within exemption limits. In Chapter 7, you can keep a car if its equity is within your state's exemption (typically $2,500–$25,000) and you're current on payments. Your home may be protected by homestead exemption, but equity above the exemption limit is at risk.

Bankruptcy Guide 2026 — Chapter 7 vs Chapter 13, Costs & What to Expect

Bankruptcy is a federal legal process that gives individuals a structured path out of debt they cannot repay. About 440,000 Americans filed personal bankruptcy in 2024, according to US Courts data. It is not a failure — it is a legal tool, and for the right situations it provides a faster, more complete reset than years of minimum payments on unmanageable debt.

The two options most individuals use are Chapter 7 (liquidation, discharges most debt in months) and Chapter 13 (reorganization, repays some debt over 3–5 years while protecting assets).

Chapter 7 vs Chapter 13: Quick Comparison

Feature	Chapter 7	Chapter 13
Timeline	3–6 months	3–5 years
Filing fee	$338	$313
Attorney fees	$1,000–$3,500	$2,500–$6,000
Means test required	Yes	No
Asset liquidation risk	Yes (non-exempt)	No
Keep home if behind on mortgage	No	Yes (if plan approved)
Keep car if behind on payments	No	Yes (if plan approved)
Credit report impact	10 years	7 years
Best for	Unsecured debt (credit cards, medical) with limited income	Secured debt (mortgage arrears, car loans) or income above means test

Chapter 7 Bankruptcy: How It Works

Chapter 7 is the most common form of personal bankruptcy. A court-appointed trustee reviews your assets and liquidates anything not protected by exemptions to pay creditors. Most Chapter 7 filers have primarily unsecured debt (credit cards, medical bills, personal loans) and few non-exempt assets — meaning almost nothing is actually liquidated.

The means test: To qualify for Chapter 7, your household income must be below your state’s median, OR your disposable income after allowed expenses must fall below a threshold set by the court. If you fail the means test, you must file Chapter 13 instead.

Timeline:

File petition + schedules (~1 day to prepare with an attorney)
Automatic stay begins immediately
341 meeting of creditors (~30 days after filing, usually 10–15 minutes)
Discharge granted (typically 60–90 days after the 341 meeting)
Case closed: 3–6 months total

What gets discharged: Credit card balances, medical debt, personal loans, utility arrears, lease deficiencies, and most other unsecured debt.

What does NOT get discharged: Student loans (with narrow exceptions), child support, alimony, recent tax debt, debts from fraud, DUI-related debts, and court-ordered restitution.

Chapter 13 Bankruptcy: How It Works

Chapter 13 is a reorganization plan. You keep all your assets and propose a 3–5 year repayment plan to pay back some or all of your debts under court supervision. It is designed for people with regular income who have fallen behind on secured debt (mortgages, car loans) and want to keep those assets.

How much you repay depends on:

Your disposable income (income minus IRS-allowed expenses)
The value of non-exempt assets (you must pay at least this much)
The type of debt (priority debts like recent taxes must be paid in full; unsecured debts receive what’s left)

Key advantage over Chapter 7: Chapter 13 allows you to cure mortgage arrears over the plan period, stopping foreclosure and allowing you to keep your home. You can also cram down a car loan (reduce the principal to the car’s current market value if you’ve owned it more than 910 days).

What Happens to Your Home in Bankruptcy

Chapter 7: You can keep your home if your equity is within your state’s homestead exemption AND you’re current on payments. If you’re behind, the automatic stay only temporarily halts foreclosure — the lender can eventually proceed. See What Happens to Your House in Bankruptcy.
Chapter 13: You can keep your home even if behind on payments, as long as you cure the arrears through your plan and continue making current mortgage payments. This is the most powerful reason to choose Chapter 13 over Chapter 7 when facing foreclosure.

What Happens to Your Car in Bankruptcy

Chapter 7: You can keep your car if its equity is within your state’s motor vehicle exemption (varies from $2,500 in some states to $25,000+ in others) and you reaffirm the loan or continue payments. If you can’t afford the payments, surrender the car — the remaining deficiency balance is discharged.
Chapter 13: You can keep your car and potentially reduce the principal owed to the vehicle’s current market value (cramdown) if you’ve owned it more than 910 days.

See What Happens to Your Car in Bankruptcy.

The Bankruptcy Decision Framework

Bankruptcy is the right choice when:

Total unsecured debt exceeds what you could repay in 5 years even with aggressive budgeting
You’re facing wage garnishment or bank levy that makes it impossible to meet basic needs
A lawsuit judgment has already been entered against you
Medical debt or a job loss created a debt load completely disconnected from your income
You’ve explored debt settlement and consolidation, and neither resolves the full balance

Before filing, read:

Step-by-Step Bankruptcy Guides

Life After Bankruptcy

Most filers see their credit score improve within 12–18 months of discharge as their debt-to-income ratio resets and they rebuild with secured credit cards and credit-builder loans. A Chapter 7 stays on your credit report for 10 years but its practical impact on mortgage eligibility fades after 2–4 years for FHA loans (4-year waiting period after discharge) and 4–7 years for conventional loans.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy