Consumer bankruptcy comes in two main forms. Chapter 7 wipes out many debts quickly, while Chapter 13 reorganizes debt into a repayment plan. The best choice depends on your income, assets and goals.
Chapter 7 in brief
Often called liquidation, Chapter 7 can discharge many unsecured debts such as credit cards and medical bills, usually within a few months. A trustee may sell non-exempt property to pay creditors, but exemption laws protect many ordinary assets. You must pass a means test that compares your income with your state's median.
Chapter 13 in brief
Chapter 13 lets you keep your property while you repay some or all of your debts through a court-approved plan that lasts three to five years. It is often used to catch up on mortgage arrears and stop foreclosure. You must have regular income and your debts must fall under set limits.
Side by side
- Speed: Chapter 7 is typically months, Chapter 13 is three to five years.
- Property: Chapter 7 may involve selling non-exempt assets, Chapter 13 generally lets you keep property.
- Eligibility: Chapter 7 has an income test, Chapter 13 requires steady income and debt limits.
- Credit report: Chapter 7 can stay about ten years, Chapter 13 about seven.
- Foreclosure: Chapter 13 can help you cure missed payments over time.
What bankruptcy does not erase
Most student loans, recent taxes, child support, alimony and certain court-ordered penalties usually survive bankruptcy. Filing also triggers an automatic stay that pauses most collection activity while the case proceeds.
Before you file
You must complete credit counseling from an approved provider before filing and a financial management course before discharge. Because the stakes are high and the rules technical, speak with a bankruptcy attorney. Many offer a free consultation, and legal aid may help if you qualify.
Frequently asked questions
Will I lose my house or car?
Not necessarily. Exemptions and the ability to keep making payments often let people keep both. The details depend on your state and your equity.
Can I file again later?
Yes, but waiting periods apply between discharges, and they differ depending on the chapters involved.