If you are struggling with overwhelming debt, bankruptcy may offer a path to financial recovery. The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. Understanding the differences can help you make an informed decision.
Chapter 7 Bankruptcy: Liquidation
Chapter 7, also known as “straight bankruptcy” or “liquidation bankruptcy,” involves the sale of non-exempt assets by a court-appointed trustee to pay your creditors. In exchange, most of your remaining debts are discharged — meaning you are no longer legally required to pay them.
Who Qualifies for Chapter 7?
Qualification for Chapter 7 depends on the means test, which compares your income to the median income in your state. If your income is below the median, you qualify. If it is above, you may still qualify if you have sufficient expenses.
Pros of Chapter 7
- Most debts discharged in 3–6 months
- No repayment plan required
- You can keep exempt property (varies by state)
Cons of Chapter 7
- Possible loss of non-exempt assets
- Remains on credit report for 10 years
- You must qualify via the means test
Chapter 13 Bankruptcy: Repayment Plan
Chapter 13, also known as “reorganization bankruptcy,” allows you to keep your assets while repaying some or all of your debts through a court-approved repayment plan lasting 3 to 5 years.
Who Qualifies for Chapter 13?
You must have regular income, and your secured debts must be less than $1,395,875 and unsecured debts less than $465,275 (as of 2026).
Pros of Chapter 13
- You keep all your assets
- You can catch up on mortgage or car payments
- Some debts may be partially discharged
Cons of Chapter 13
- Requires 3–5 years of repayment
- Remains on credit report for 7 years
- Court approval required for major financial decisions
Which Is Right for You?
Choose Chapter 7 if you have limited income and few assets you need to protect. Choose Chapter 13 if you have steady income and want to keep your home or car while catching up on payments.
Consult a bankruptcy attorney to determine which option is best for your specific financial situation.