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Debtintermediate 9 min read

Filing Bankruptcy: Chapters 7 and 13 Explained

Understand the differences between Chapter 7 and Chapter 13 bankruptcy, eligibility requirements, and what to expect during the process.

Filing Bankruptcy

Chapter 7: Liquidation

Chapter 7 eliminates most unsecured debts (credit cards, medical bills, personal loans) in exchange for surrendering non-exempt assets.

Eligibility: Must pass the means test — your income must be below your state's median income, or your disposable income must be too low to fund a Chapter 13 plan.

What Happens:

  • File petition, schedules, and financial statements with the bankruptcy court
  • Automatic stay immediately stops collections, lawsuits, garnishments, and foreclosure
  • A trustee is appointed to review your assets
  • Attend a 341 Meeting of Creditors (brief, typically 5-10 minutes)
  • Non-exempt assets are sold to pay creditors (most Chapter 7 cases are "no-asset")
  • Remaining eligible debts are discharged (eliminated) — typically within 3-4 months

    • Debts NOT Discharged: Student loans (usually), recent taxes, child support, alimony, fraud-based debts, DUI-related debts

    Chapter 13: Reorganization

    Chapter 13 allows you to keep your assets and repay some or all debts through a 3-5 year payment plan.

    Eligibility: Regular income. Secured debts under $2,750,000 and unsecured debts under $2,750,000 (2024 limits, adjusted periodically).

    Best for:

  • Homeowners behind on mortgage payments who want to keep their home
  • People with income too high for Chapter 7
  • People who want to protect non-exempt assets
  • People with non-dischargeable tax debts they need time to pay

    • Exemptions: What You Can Keep

    Bankruptcy exemptions protect certain property from being taken by the trustee:

  • Homestead Exemption: Protects equity in your primary residence (varies widely by state: $0 in some states to unlimited in Texas and Florida)
  • Vehicle Exemption: Typically $2,000-$7,500 in equity
  • Personal Property: Clothing, household goods, tools of the trade
  • Retirement Accounts: 401(k)s and IRAs are generally fully protected
  • Wildcard Exemption: Can be applied to any property

    • The Impact on Your Credit

  • Chapter 7 stays on your credit report for 10 years
  • Chapter 13 stays for 7 years
  • You can begin rebuilding credit immediately after discharge with secured credit cards and responsible use
    • Disclaimer: Bankruptcy is a powerful tool but has long-term consequences. Consult a bankruptcy attorney for a free evaluation of your options.

    Disclaimer: This guide is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for your specific situation.