Chapter 7 vs. Chapter 13: The Real Difference

Bankruptcy isn't one thing — for individuals, it's almost always either Chapter 7 or Chapter 13, and the two work in close to opposite directions.

Chapter 7 liquidates non-exempt assets (in practice, often few or none for most filers) to pay creditors, then discharges most remaining unsecured debt relatively quickly — often within a few months. It requires passing a means test based on income.

Chapter 13 instead sets up a repayment plan, typically over three to five years, to pay back some or all of what's owed while protecting assets like a home from being sold to pay creditors. It's generally chosen by people with regular income who want to keep an asset Chapter 7 might put at risk.

This is a genuinely legal decision, not a financial one alone — a free consultation with a bankruptcy attorney is worth having before choosing either path. If bankruptcy doesn't turn out to be the right fit, see what applies to you for the other options.