Chapter 7 vs. Chapter 13 Bankruptcy: How They Differ

Published September 25, 2026 · Bankruptcy basics

Chapter 7 bankruptcy involves selling assets to pay debts, while Chapter 13 bankruptcy sets up a repayment plan over several years. Each is designed for different financial situations.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is a process supervised by a court. The U.S. Courts describe it as a liquidation. In this process, a person called a trustee is appointed. The trustee’s job is to take the debtor’s assets that are not exempt from the bankruptcy process. Debtor is the legal term for the person who owes money. Non-exempt assets are things you own that the law does not protect from being sold to pay your debts. These assets are then turned into cash. This cash is used to pay your creditors, who are the people or companies you owe money to.

Chapter 7 is often chosen by individuals who have limited income and few assets that are not exempt. The goal is to get a discharge of debts, which means you are no longer legally required to pay certain debts.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is designed for individuals who have a regular income. It allows you to keep an asset, such as your house. Instead of selling assets, you propose a repayment plan to your creditors. This plan outlines how you will repay your debts over time. The U.S. Courts state this repayment period is usually three to five years. During this time, you make regular payments according to the approved plan. Once you complete the plan, any remaining eligible debts are discharged.

Chapter 13 can be a good option if you want to save your home from foreclosure or if you have assets you want to keep. It also works for people who have too much income to qualify for Chapter 7, or who have debts that cannot be discharged in Chapter 7.

Key Requirements Before Filing

Before you can file for either Chapter 7 or Chapter 13 bankruptcy, you must complete certain steps. One important step is credit counseling. This counseling must come from an agency that is approved for this purpose. According to a notice from the U.S. Bankruptcy Court for the District of Columbia, you must complete this counseling within the 180-day period before you file your bankruptcy petition. A bankruptcy petition is the official document that starts your bankruptcy case with the court.

If you do not complete this credit counseling within the 180-day timeframe, your bankruptcy case will be dismissed. A case that is dismissed for this reason will not result in a discharge of your debts. This means you would still owe the money.

What Happens After Filing?

After you file your bankruptcy petition, there is another required course you must take. This is called debtor education. The U.S. Courts explain that credit counseling must happen before you file, and debtor education must happen after you file. For both the credit counseling and the debtor education, you must use providers approved by the U.S. Trustee Program in most states. However, in Alabama and North Carolina, bankruptcy administrators are responsible for approving these providers. It is important to confirm which type of provider is approved in your state.

Practical Steps to Consider

If you are thinking about bankruptcy, here are some general steps you can take:

1. Gather financial documents: Collect records of all your income, debts, assets, and expenses. This includes pay stubs, bank statements, tax returns, bills, and property deeds.
2. Make a list of debts: Write down everyone you owe money to, how much you owe, and what type of debt it is (e.g., credit card, mortgage, medical bills).
3. List your assets: Document everything you own, including real estate, vehicles, bank accounts, investments, and personal property.
4. Understand your income and expenses: Create a clear picture of how much money you earn and where it goes each month. This will help determine which chapter of bankruptcy might be suitable.
5. Look for approved credit counseling agencies: Research agencies approved by the U.S. Trustee Program or your state’s bankruptcy administrator, as applicable. You can find this information through official U.S. government bankruptcy websites.

When to get legal help

Bankruptcy law is complex, and the rules can vary by state. The information here is general and not legal advice for your situation. You should talk to a licensed attorney in your state to understand how bankruptcy laws apply to your specific financial situation.

A licensed attorney can explain the specific requirements and consequences of Chapter 7 and Chapter 13 in your state. They can help you understand if you qualify for either type of bankruptcy. They can also advise you on how your assets might be treated and what debts could be discharged. An attorney can help you navigate the process of credit counseling and debtor education, ensuring you meet all deadlines and requirements.

If you cannot afford a private attorney, you may be able to find help through a legal aid office in your area. You can also contact your state bar association, which may offer referral services or information about legal resources.