Bankruptcy Lawyer: Chapter 7 vs. Chapter 13 — Which Is Right for You?

Bankruptcy has a stigma that does not match the reality of how and why people use it. It is a legal tool created by federal law specifically to give individuals a structured way out of unmanageable debt — a fresh start that the law protects. Roughly 400,000 Americans file for personal bankruptcy each year, and the overwhelming majority are people who fell into financial difficulty through job loss, medical bills, divorce, or a combination of all three.

The two chapters most relevant to individuals are Chapter 7 and Chapter 13. They serve different purposes, suit different financial situations, and have different consequences. A bankruptcy attorney helps you determine which applies to your situation, navigates the filing process, and protects you from the mistakes that can derail a bankruptcy case or result in denial of discharge.

1. What both chapters have in common: the automatic stay

Regardless of which chapter you file under, the moment you file for bankruptcy an automatic stay goes into effect. The automatic stay is a federal court order that immediately stops most collection activity:

• Creditor phone calls, letters, and lawsuits
• Wage garnishments
• Bank levies
• Most foreclosure proceedings (temporarily)
• Utility shutoffs (temporarily)
• Repossession

The automatic stay buys time. It gives you breathing room to work through the bankruptcy process without creditors actively pursuing collection while your case is pending.

2. Chapter 7 bankruptcy: the liquidation chapter

How it works. Chapter 7 is a liquidation bankruptcy. A court-appointed trustee reviews your assets and debts, liquidates any non-exempt assets to pay creditors, and you receive a discharge — a legal elimination of most remaining debt. From filing to discharge typically takes three to six months.

What gets discharged. Most unsecured debt is dischargeable in Chapter 7: credit card debt, medical bills, personal loans, utility arrears, and most judgments. Secured debt (mortgage, auto loan) is not discharged — the creditor retains the lien on the property.

What does not get discharged. Certain categories of debt cannot be discharged in any bankruptcy: student loans (with rare hardship exceptions), child support and alimony, most tax debts, court-ordered restitution, and debts arising from fraud.

The means test. Chapter 7 is not available to everyone. You must pass the "means test" — a calculation comparing your income to the median income in your state for a household of your size. If your income is below the median, you generally qualify. If it is above, a more detailed analysis of your expenses and disposable income determines whether you can proceed with Chapter 7 or must file Chapter 13.

The asset question. Exemptions allow you to protect certain property in Chapter 7. Each state defines its own exemptions (with some states allowing you to choose between state and federal exemptions). Common exemptions protect a certain amount of home equity (the homestead exemption), a vehicle, household goods, retirement accounts, and tools of your trade. Property that exceeds exemption limits may be liquidated by the trustee. For most consumer filers, assets are within exemption limits and nothing is actually liquidated.

Who Chapter 7 is right for. Chapter 7 is typically suited for people with primarily unsecured debt (credit cards, medical bills), limited income (below or near the state median), limited non-exempt assets, and no secured debt they are trying to save (or secured debt where the underlying asset is not worth keeping).

3. Chapter 13 bankruptcy: the reorganization chapter

How it works. Chapter 13 is a reorganization bankruptcy. Instead of liquidating assets, you propose a three-to-five-year repayment plan to the court that pays back some or all of your debt from your disposable income. At the end of the plan, remaining eligible unsecured debt is discharged. The process is longer and more complex than Chapter 7 but offers capabilities Chapter 7 does not.

What Chapter 13 can do that Chapter 7 cannot.

Save your home from foreclosure. Chapter 13 allows you to catch up on mortgage arrears through the repayment plan. If you are behind on your mortgage and want to keep your house, Chapter 13 is the tool that makes it possible — Chapter 7 provides only temporary relief from the foreclosure timeline. You must be able to maintain current mortgage payments while making plan payments.

Strip a second mortgage. In some cases where your home is worth less than you owe on the first mortgage, Chapter 13 allows "lien stripping" — treating a wholly unsecured second mortgage as unsecured debt to be discharged at the end of the plan.

Protect non-exempt assets. Because you are repaying creditors rather than liquidating, you can keep non-exempt property by paying its value to unsecured creditors through the plan.

Address non-dischargeable debt. Certain tax debts and student loan obligations that do not discharge may be more manageable through a structured plan than outside of bankruptcy.

Who Chapter 13 is right for. Chapter 13 is suited for people with regular income sufficient to fund a repayment plan, secured debts they want to protect (particularly a home at risk of foreclosure), non-exempt assets worth keeping, income above the Chapter 7 means test threshold, or recent prior bankruptcy filings that make Chapter 7 unavailable.

4. What a bankruptcy attorney does for you

Determines which chapter applies. The means test calculation, the treatment of specific debts, and the strategic consequences of each chapter are legal and financial analysis that most people cannot accurately perform on their own.

Prepares accurate schedules. The bankruptcy petition requires full disclosure of all assets, liabilities, income, expenses, and recent financial transactions. Errors, omissions, or misstatements can result in denial of discharge or, in serious cases, allegations of bankruptcy fraud. An attorney ensures accurate, complete disclosure.

Handles creditor objections. Creditors can file objections to the discharge of specific debts (alleging fraud, for example) or challenge the plan in a Chapter 13 case. An attorney responds to these objections and represents you at creditor meeting hearings.

Manages the trustee relationship. The trustee plays an active role in both chapters — reviewing your filing, asking questions at the Section 341 Meeting of Creditors, and in Chapter 13, reviewing and confirming your repayment plan. An attorney prepares you for trustee interaction and handles any issues that arise.

5. What bankruptcy attorneys cost

Chapter 7. Attorney fees for Chapter 7 are typically flat fees ranging from $1,000 to $3,500 depending on the complexity of your case and your location. Court filing fees add approximately $338. Bankruptcy attorney fees in Chapter 7 must be paid before filing — attorneys cannot be paid post-filing from a bankrupt estate for services already rendered.

Chapter 13. Chapter 13 is more complex and involves ongoing work over the life of the plan. Attorney fees typically range from $3,000 to $6,000 or more. A portion of the fee can often be paid through the repayment plan, reducing the upfront cost.

Do not use a petition preparer instead of an attorney. Non-attorney "bankruptcy petition preparers" can type your forms but cannot provide legal advice, evaluate whether bankruptcy is appropriate, advise on exemptions, or represent you. Errors in a bankruptcy filing can cause dismissal, denial of discharge, or loss of assets. The cost of an attorney is a meaningful investment in a process that has significant financial consequences.

Frequently Asked Questions

Will bankruptcy ruin my credit permanently? A bankruptcy filing remains on your credit report for seven years (Chapter 13) or ten years (Chapter 7). The immediate effect on your credit score is significant. However, most people who file for bankruptcy already have significantly damaged credit from missed payments, charge-offs, and collection accounts. Many filers see their credit score begin to recover within one to two years of discharge, because the discharged debts no longer appear as negative active accounts. Rebuilding credit after bankruptcy — through a secured credit card, consistent payment history — is achievable.

Can I keep my car if I file bankruptcy? In Chapter 7, you can generally keep your car if you are current on the loan and your equity in the vehicle is within the exemption limit for your state, by "reaffirming" the debt (agreeing to remain personally liable). If you are behind on the loan or have equity above the exemption, the outcome depends on the facts. In Chapter 13, you can keep your car by maintaining payments through the plan, and in some cases you may be able to reduce the principal owed to the vehicle's current market value if the loan is more than 910 days old.

Can bankruptcy stop a wage garnishment? Yes. The automatic stay that takes effect when you file stops wage garnishments immediately. If your wages are being garnished, the garnishment must stop upon the filing of your petition. If garnishments have already been taken, you may be able to recover funds taken shortly before filing through the trustee's avoidance powers, depending on the circumstances.

What is the Section 341 Meeting of Creditors? The 341 Meeting is a required hearing in every bankruptcy case, typically held 30 to 45 days after filing. You appear under oath before the trustee (not a judge) to answer questions about your financial situation and the accuracy of your petition. Creditors are allowed to attend and ask questions, though they rarely do in consumer cases. The meeting typically lasts 10 to 15 minutes for straightforward cases. Your attorney prepares you and attends with you.

How soon can I file for bankruptcy again after a prior filing? The law imposes waiting periods between bankruptcy filings if you previously received a discharge. If you received a Chapter 7 discharge, you must wait eight years before filing Chapter 7 again. If you received a Chapter 13 discharge, you must wait four years before filing Chapter 7. If you need to file Chapter 13 after a Chapter 7 discharge, the waiting period is four years. An attorney can advise on exactly what waiting period applies to your situation.

---

Ready to find a qualified attorney? Browse our verified lawyer directory and connect directly.

This article is for informational purposes only and does not constitute legal advice. Laws vary by state. Consult a licensed attorney in your jurisdiction for advice on your specific situation.