Bankruptcy: Chapter 7 vs. Chapter 13 and what each path costs

Chapter 7 fits if your income passes the means test and the property you own is mostly covered by exemptions: it wipes out most unsecured debt, such as credit cards and medical bills, usually within a few months of filing. Chapter 13 fits if your income is too high for Chapter 7, you own property the exemptions don’t protect, or you need to catch up on a mortgage or car loan to keep it: you repay what you can through a three to five year plan and keep your property.

Both are federal court procedures with fixed steps. The details below decide which one is open to you and what it costs.

The means test decides whether Chapter 7 is open

The test starts with your “current monthly income,” which is the average of what your household received over the six full calendar months before you file. That figure, annualized, is compared with the median income for a household of your size in your state, published by the Justice Department’s U.S. Trustee Program.

• Below the median: you pass, and Chapter 7 is available.
• Above the median: you complete a second worksheet that subtracts allowed living expenses and payments on secured debt. If enough disposable income is left over to repay a meaningful share of unsecured debt over five years, a Chapter 7 case is presumed to be an abuse, and Chapter 13 is the realistic route.

What you can keep: exemptions

In Chapter 7, a trustee can sell property that is not exempt and pay the proceeds to creditors. Many states make you use their own exemption list; others let you choose between the state list and the federal one in the Bankruptcy Code. Federal amounts were adjusted on April 1, 2025 and apply to cases filed through March 31, 2028:

• Home equity (homestead): $31,575.
• One motor vehicle: $5,025.
• A “wildcard” for any property: $1,675, plus up to $15,800 of the homestead amount you don’t use.

A married couple filing jointly can each claim these amounts.

Now a worked example using the federal list. Say you owe $55,000 in medical bills and card balances, own a car worth $14,000 outright, have $2,000 in savings, and are current on your mortgage. The car is $8,975 over the vehicle exemption, so with the savings, $10,975 of property is exposed before the wildcard.

• With $20,000 of home equity: the homestead exemption covers it and leaves $11,575 unused. The wildcard becomes $1,675 plus $11,575, or $13,250, which covers the $10,975. Nothing has to be sold.
• With $40,000 of home equity: $8,425 of equity is unprotected, there is no unused homestead amount, and the wildcard is only $1,675. That leaves $17,725 of property exposed, and Chapter 13 is how people in that position usually keep it.

State exemptions can be far more or far less generous, which is why the same family can face opposite answers in two states.

In Chapter 13 there is no liquidation. The trade-off is that your plan must pay unsecured creditors at least what they would have received from the sale of your non-exempt property in a Chapter 7 case, and in the example above that floor would be about $17,725.

What bankruptcy doesn’t erase

A Chapter 7 discharge does not leave everyone debt-free. Under the Bankruptcy Code, these generally survive:

• Most student loans, unless you prove undue hardship in a separate proceeding.
• Child support and alimony.
• Many tax debts, especially recent income taxes.
• Debts from fraud, criminal fines and restitution, and injuries caused by driving while intoxicated.

Liens also survive. If you keep a financed car or a house, the lender keeps its claim on it, so you keep paying to keep the property. And a co-signer remains liable for a debt you discharge, so a parent or partner who co-signed can be pursued for it.

Required steps and timeline

1. Credit counseling first. You must complete a briefing from a U.S. Trustee approved agency within 180 days before filing.
2. File the petition. The filing fee is $338 for Chapter 7 and $313 for Chapter 13. Courts can let you pay in installments, and a Chapter 7 fee can be waived if your income is below 150% of the federal poverty guidelines.
3. The automatic stay. Filing immediately stops most collection: lawsuits, wage garnishments and collection calls.
4. The meeting of creditors. Between 21 and 40 days after filing, you answer the trustee’s questions under oath. Creditors rarely attend.
5. A debtor education course. A second course, on personal financial management, must be completed before you can receive a discharge.
6. Discharge. In Chapter 7 the court generally issues it 60 to 90 days after the first date set for the meeting of creditors, so about three to four months after filing. In Chapter 13 it comes after you finish the plan: three years if your income is below the state median (it can run up to five), five years if it is above.

Two limits matter if you have filed before: a Chapter 7 discharge is not available if you received one in a case filed within the previous eight years, and a Chapter 13 discharge is not available within four years of a prior Chapter 7 case or two years of a prior Chapter 13 case. Attorney fees are where the chapters really differ in cost; Chapter 13 fees are higher and are often paid partly through the plan.

Your credit report afterward

The Fair Credit Reporting Act allows a bankruptcy to be reported for up to 10 years from the date of the order for relief, which in a case you file yourself is the filing date. Equifax, Experian and TransUnion remove a completed Chapter 13 after seven years as a matter of their own policy; Chapter 7 cases stay the full 10. The discharged accounts themselves should be updated to show a $0 balance and “included in bankruptcy.”

The reporting period is only part of the story. A Chapter 7 filer is usually out of the case within a few months and can start rebuilding, for example with a secured card paid on time. A Chapter 13 filer spends three to five years in a court-supervised budget and should not take on new debt, such as a car loan, without consulting the trustee. Our guide to how long negative marks last compares bankruptcy with other items.

A quick way to see which chapter fits

• Lean toward Chapter 7 if your income is below your state median, your exemptions cover what you own, and your debts are mostly cards, medical bills and personal loans.
• Lean toward Chapter 13 if your income is above the median and the second test shows disposable income, your property exceeds the exemptions, you are behind on a mortgage or car loan you want to keep, or you received a Chapter 7 discharge in a case filed in the last eight years.
• Look at alternatives first if your debt could be repaid in five years at a lower rate: a debt management plan through a nonprofit counselor keeps you out of court.

State exemption laws and local court practice change the answer, so take your numbers to a bankruptcy attorney before filing. Many offer a free first consultation, and legal aid offices handle some cases.