Chapter 7 vs Chapter 13 Bankruptcy 2026: Which One Is Right for You?

Drowning in debt and trying to decide between Chapter 7 and Chapter 13 bankruptcy? You are not alone. In 2025, nearly 500,000 Americans filed for personal bankruptcy — and the top question attorneys hear every day is: “Which chapter is right for me?”

This guide breaks down both options in plain English so you can make an informed decision in 2026.

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What Is Chapter 7 Bankruptcy?

Chapter 7 is called liquidation bankruptcy. A court-appointed trustee reviews your assets, sells any non-exempt property, and uses the proceeds to pay creditors. In exchange, most of your remaining unsecured debts — credit cards, medical bills, personal loans — are discharged (legally erased).

Key facts at a glance

• Timeline: 3–4 months from filing to discharge
• Who qualifies: Must pass the means test (income below your state’s median, or disposable income too low to repay debts)
• Filing fee: $338
• Attorney fees: $1,500–$2,500 (typical range)
• Credit report impact: Stays 10 years

The means test

The means test compares your average monthly income over the past 6 months to your state’s median income for a household of your size. If you are below the median, you automatically qualify. If you are above, a second calculation determines whether you have enough disposable income to fund a Chapter 13 plan.

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What Is Chapter 13 Bankruptcy?

Chapter 13 is called reorganization bankruptcy. Instead of liquidating assets, you propose a 3–5 year repayment plan to pay back some or all of your debts. When you complete the plan, remaining eligible debts are discharged.

Key facts at a glance

• Timeline: 3–5 years (plan completion), then discharge
• Who qualifies: Must have regular income; debt limits apply (see below)
• Filing fee: $313
• Attorney fees: $3,000–$6,000 (federal minimum guidelines vary by district)
• Credit report impact: Stays 7 years

2026 Chapter 13 debt limits

Congress periodically adjusts debt limits for Chapter 13 eligibility. For 2026, the estimates (based on prior adjustments) are approximately:

• Secured debt limit: ~$1.4 million (e.g., mortgage, car loan)
• Unsecured debt limit: ~$465,000 (e.g., credit cards, medical bills)

If your debts exceed these thresholds, you may need to consider Chapter 11, which is more complex and expensive.

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Chapter 7 vs Chapter 13: Side-by-Side Comparison

Factor	Chapter 7	Chapter 13
Process	Liquidation	Reorganization
Timeline	3–4 months	3–5 years
Income requirement	Below-median or low disposable income	Regular income required
Keep home/car?	Only if equity within exemptions	Yes, if payments maintained
Unsecured debt discharged	Yes, most of it	Remaining after plan
Credit report	10 years	7 years
Filing fee	$338	$313
Attorney cost	$1,500–$2,500	$3,000–$6,000

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How Each Option Affects Your House

Chapter 7 and your home

When you file Chapter 7, the automatic stay immediately stops any foreclosure proceedings. However, this is only temporary.

• If you are current on your mortgage, you can keep the house as long as your home equity is within your state’s homestead exemption.
• If your equity exceeds the exemption, the trustee may sell the home to pay creditors.
• If you are behind on payments, Chapter 7 does not give you a way to catch up — you may still lose the home after the stay lifts.

Homestead exemption examples:

• Texas / Florida: Unlimited homestead exemption (yes, unlimited)
• California (System 1): ~$626,400
• New York: ~$179,975
• Most other states: $25,000–$75,000

Chapter 13 and your home

Chapter 13 is the preferred option for homeowners at risk of foreclosure. The automatic stay stops foreclosure immediately, and your repayment plan can include catching up on mortgage arrears over 3–5 years. As long as you stay current going forward and complete the plan, you keep the house.

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How Each Option Affects Your Car

Chapter 7 and your car

• If you are current on payments and the car’s equity is within your state’s vehicle exemption, you keep it.
• You must sign a reaffirmation agreement to continue owing the debt post-discharge.
• If you owe more than the car is worth (underwater), you can sometimes pay the “cramdown” value in Chapter 13 — but not in Chapter 7.

Chapter 13 and your car

Chapter 13 allows a powerful tool called cramdown: if you have had the car loan for more than 910 days (about 2.5 years), you can reduce the loan balance to the car’s current market value. This can save thousands on an underwater vehicle loan.

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What Debts Get Discharged?

Dischargeable in both chapters

• Credit card balances
• Medical bills
• Personal and payday loans
• Utility arrears
• Lease obligations (if rejected)
• Some older income tax debt (must meet a 5-part test)

Not dischargeable in either chapter

• Child support and alimony — always survives bankruptcy
• Most student loans — dischargeable only if you prove “undue hardship” (very difficult standard)
• Recent tax debt — income taxes less than 3 years old generally survive
• Fraud-based debts — if a creditor proves you lied to get credit
• Criminal fines and restitution
• Recent luxury purchases (over $800 within 90 days of filing) — presumed non-dischargeable

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The 341 Meeting of Creditors

About 21–40 days after filing, you must attend a 341 meeting (named after Section 341 of the Bankruptcy Code). Despite the name, creditors rarely show up.

What to expect:

1. The trustee places you under oath
2. You confirm the accuracy of your bankruptcy petition
3. The trustee asks standard questions: income, assets, recent financial transactions
4. The meeting typically lasts 5–15 minutes
5. Creditors have the right to attend and ask questions (they almost never do)

Bring a government-issued photo ID and your Social Security card (or proof of SSN). Failure to appear can result in dismissal of your case.

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Credit Report Impact

Chapter 7: 10-year clock

A Chapter 7 discharge appears on your credit report for 10 years from the filing date. This has a significant negative impact initially — most filers see scores drop 100–200 points. However:

• Secured credit cards and credit-builder loans can help rebuild within 12–24 months
• Some filers qualify for FHA mortgages just 2 years after Chapter 7 discharge
• The impact diminishes every year as positive history is added

Chapter 13: 7-year clock

Chapter 13 stays on your report for 7 years from the filing date (not the discharge date). Because you are paying creditors back, lenders sometimes view this more favorably than Chapter 7 during the reporting period.

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Attorney Fees and Court Costs

Filing fees (2026)

Chapter	Court filing fee
Chapter 7	$338
Chapter 13	$313

Fee waiver: For Chapter 7 filers with income below 150% of the federal poverty level, the court filing fee can be waived.

Attorney fees

• Chapter 7: $1,500–$2,500 is typical for a straightforward case. Complex cases (business income, multiple properties) can run higher.
• Chapter 13: $3,000–$6,000 is common. Many attorneys allow fees to be paid through the repayment plan itself.

Can you file without an attorney (pro se)? Technically yes. But the process is complex, and errors can result in dismissal. For Chapter 13 especially, hiring an attorney is strongly recommended.

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How to Choose: Key Decision Questions

Ask yourself these questions:

1. Do I need to stop foreclosure or repossession immediately? → Chapter 13 gives you the most protection for secured assets.

2. Is my income below my state’s median? → If yes, Chapter 7 is likely available and much faster.

3. Do I have significant non-exempt equity in my home or other assets? → If yes, Chapter 13 may protect more of what you own.

4. Do I have mostly unsecured debt (credit cards, medical)? → Chapter 7 wipes these out in 3–4 months.

5. Can I afford a 3–5 year repayment commitment? → Chapter 13 requires consistent income and discipline. If life circumstances may change, discuss the risks with an attorney.

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Comparison with Non-U.S. Systems

Korean equivalent: 개인파산 vs 개인회생

For Korean readers or Korean-Americans comparing systems:

• 개인파산 (Personal Bankruptcy) is the Korean equivalent of Chapter 7. A court discharges most debts, but non-exempt assets can be liquidated. The process takes roughly 6–12 months in Korea.
• 개인회생 (Personal Rehabilitation) is similar to Chapter 13. You propose a 3–5 year repayment plan, keep your assets, and remaining debts are discharged upon completion.

The key difference: Korean courts have more discretion in accepting cases, and the “means test” equivalent is less standardized than the U.S. system. Attorney guidance is equally critical in both countries.

Spanish equivalent: Ley de Segunda Oportunidad (BEPI)

Spain’s “Second Chance Law” (Ley de Segunda Oportunidad / BEPI) was significantly reformed in 2022. It offers two paths:

• PAEP (Plan de Reestructuración): Restructures debts over time — similar in concept to Chapter 13
• Exoneración del pasivo insatisfecho (BEPI): Discharges remaining debts after liquidation — similar to Chapter 7

Unlike the U.S. system, the Spanish process requires attempting mediation first and has stricter “good faith” requirements. For Spanish-speaking immigrants in the U.S., U.S. bankruptcy law applies to U.S.-held debts regardless of your country of origin.

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What Happens After Bankruptcy?

Bankruptcy is not the end — it is a legal fresh start. Here is what to do after discharge:

1. Get your credit reports from all three bureaus (AnnualCreditReport.com)
2. Dispute any errors — discharged debts should show $0 balance with “discharged in bankruptcy” notation
3. Open a secured credit card to start rebuilding
4. Create a budget to avoid the patterns that led to bankruptcy
5. Consider a credit-builder loan from a credit union

Most people see meaningful credit improvement within 2 years of discharge if they are proactive.

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Related Reading

Looking for more information on debt and legal costs?

• Personal Recovery vs Bankruptcy: A 2026 Comparison
• How Much Does a Bankruptcy Attorney Cost in 2026?
• Lawyer Consultation Cost Guide 2026

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Frequently Asked Questions

What is the main difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 wipes out most unsecured debts in 3–4 months through liquidation. Chapter 13 lets you keep assets like your home and car by setting up a 3–5 year repayment plan. Chapter 7 is faster but requires passing a means test; Chapter 13 is for people with regular income who want to protect secured assets.

Will I lose my house if I file Chapter 7 bankruptcy?

Not necessarily. Every state has a homestead exemption that protects some home equity. If your equity is within the exemption limit, you can keep your house — as long as you stay current on mortgage payments. Chapter 13 offers stronger foreclosure protection.

How long does bankruptcy stay on my credit report?

Chapter 7 stays on your credit report for 10 years from the filing date. Chapter 13 stays for 7 years. Both cause a significant initial drop in credit score, but rebuilding is possible within 1–2 years post-discharge.

What debts cannot be discharged in bankruptcy?

Student loans (with very rare exceptions), most recent tax debt, child support, alimony, criminal fines, and debts from fraud generally cannot be discharged in either chapter.

How much does it cost to file bankruptcy in 2026?

Court filing fees are $338 for Chapter 7 and $313 for Chapter 13. Attorney fees typically run $1,500–$2,500 for Chapter 7 and $3,000–$6,000 for Chapter 13. Fee waivers are available for low-income Chapter 7 filers.