- 1 Chapter 7 eliminates most unsecured debts in 3-4 months — but requires passing the means test and may require surrendering non-exempt assets. Filing fee: $338, attorney fees: $1,000-$3,000.
- 2 Chapter 13 restructures debt into a 3-5 year repayment plan — letting you keep your home and car while catching up on missed payments. Filing fee: $313, attorney fees: $2,500-$5,000.
- 3 Bankruptcy filings rose 11% in 2025 to 565,759 total cases — driven by elevated prices, higher borrowing costs, and mounting consumer debt, with Chapter 7 filings up 15% year-over-year.
- 4 95% of Chapter 7 filers hire an attorney — and for good reason: mistakes can result in case dismissal, loss of assets, or debts that aren't properly discharged.
📋 In This Guide
- What Is Bankruptcy?
- Chapter 7 vs Chapter 13: Side-by-Side Comparison
- Chapter 7 Bankruptcy Explained
- Chapter 13 Bankruptcy Explained
- How Much Does Bankruptcy Cost?
- The Means Test: Do You Qualify for Chapter 7?
- What Debts Can Bankruptcy Discharge?
- What Debts Cannot Be Discharged?
- Bankruptcy Exemptions: What You Can Keep
- The Bankruptcy Filing Process
- How Bankruptcy Affects Your Credit
- Alternatives to Bankruptcy
- How to Choose a Bankruptcy Lawyer
- FAQ
Overwhelming debt can feel suffocating — but bankruptcy exists specifically to give people a fresh financial start. Whether you’re drowning in medical bills, credit card debt, or facing foreclosure, understanding the difference between Chapter 7 and Chapter 13 bankruptcy is the first step toward taking control of your finances.
In 2025, 565,759 Americans filed for bankruptcy — an 11% increase from the previous year — driven by elevated prices, higher borrowing costs, and mounting household debt. Consumer Chapter 7 filings alone surged 15% year-over-year, signaling growing financial pressure on American families. If you’re considering bankruptcy, you’re far from alone, and the process is designed to help — not punish — people who need relief.
This guide breaks down everything you need to know about Chapter 7 and Chapter 13 bankruptcy, from costs and eligibility to what debts you can eliminate and how to choose the right bankruptcy attorney.
What Is Bankruptcy?
Bankruptcy is a federal legal process that helps individuals and businesses who cannot repay their debts get relief. It’s governed by Title 11 of the United States Code and administered through federal bankruptcy courts in each state.
The two most common types of personal bankruptcy are:
- Chapter 7 (Liquidation Bankruptcy) — eliminates most unsecured debts in exchange for potentially surrendering non-exempt assets. Typically completed in 3-4 months.
- Chapter 13 (Reorganization Bankruptcy) — creates a court-supervised repayment plan lasting 3-5 years, allowing you to keep your property while repaying a portion of your debts.
- 565,759 total bankruptcy filings in 2025 (up 11% from 2024)
- 533,949 individual (consumer) filings (up 12%)
- 332,706 consumer Chapter 7 filings (up 15%)
- 200,055 consumer Chapter 13 filings (up 6%)
- 95.6% of all bankruptcies are consumer (non-business) cases
- Filings still remain below the pre-pandemic total of 757,816 in 2019
Bankruptcy is not a personal failure — it’s a legal tool created by Congress to help people recover from financial hardship. The vast majority of filers are regular people dealing with medical emergencies, job losses, divorces, or other life events beyond their control.
Chapter 7 vs Chapter 13: Side-by-Side Comparison
Understanding the key differences between Chapter 7 and Chapter 13 is critical for choosing the right path.
Chapter 7 (Liquidation)
- Timeline: 3-4 months
- Filing fee: $338
- Attorney fees: $1,000-$3,000
- Income requirement: Must pass means test
- Assets: Non-exempt assets may be sold
- Debt repayment: None required
- Best for: Low-income filers with mostly unsecured debt
- Credit report: Stays for 10 years
- Can file again: After 8 years
Chapter 13 (Reorganization)
- Timeline: 3-5 years
- Filing fee: $313
- Attorney fees: $2,500-$5,000
- Income requirement: Must have regular income
- Assets: You keep all property
- Debt repayment: Partial repayment via court plan
- Best for: Higher-income filers who want to keep assets
- Credit report: Stays for 7 years
- Can file again: After 2 years
Chapter 7 Bankruptcy Explained
Chapter 7 is the most common type of bankruptcy, accounting for approximately 62% of all consumer filings in 2025. It’s often called “liquidation bankruptcy” because a court-appointed trustee may sell your non-exempt assets to repay creditors — though in practice, most Chapter 7 cases are “no-asset” cases where the filer keeps everything.
How Chapter 7 works:
- You file a petition with the bankruptcy court along with detailed financial schedules listing all income, expenses, assets, and debts.
- The court appoints a bankruptcy trustee to review your case.
- An automatic stay immediately stops all collection actions — including wage garnishments, lawsuits, foreclosures, and creditor phone calls.
- You attend a 341 Meeting of Creditors (usually 20-30 minutes) where the trustee and any creditors can ask questions about your finances.
- The trustee determines whether you have any non-exempt assets that can be sold to pay creditors.
- Approximately 60-90 days after the 341 meeting, the court issues a discharge order eliminating qualifying debts.
Chapter 7 Pros
- Eliminates most unsecured debts completely
- Completed in just 3-4 months
- No repayment plan required
- Most cases are no-asset (you keep everything)
- Automatic stay stops all collections immediately
- Filing fee can be waived for low-income filers
Chapter 7 Cons
- Must pass the means test to qualify
- Non-exempt assets may be liquidated
- Cannot stop foreclosure long-term
- Stays on credit report for 10 years
- Cannot file again for 8 years
- Won't eliminate student loans (in most cases)
Chapter 13 Bankruptcy Explained
Chapter 13 bankruptcy — sometimes called “wage earner bankruptcy” — allows individuals with regular income to create a court-approved repayment plan to pay back some or all of their debts over 3 to 5 years. After completing the plan, remaining qualifying unsecured debts are discharged.
How Chapter 13 works:
- You file a petition along with a proposed repayment plan showing how you’ll pay creditors from your disposable income.
- The automatic stay stops all collection activities.
- You begin making monthly payments to a Chapter 13 trustee, who distributes the funds to creditors according to your plan.
- The bankruptcy court holds a confirmation hearing to approve your repayment plan.
- You make payments for 3 years (below-median income) or 5 years (above-median income).
- After completing all plan payments, remaining qualifying debts are discharged.
Chapter 13 Pros
- Keep all your property including home and car
- Stop foreclosure and catch up on mortgage arrears
- Reduce total amount owed on some debts
- Attorney fees can be included in repayment plan
- Credit report impact removed after 7 years
- Can file again after just 2 years
Chapter 13 Cons
- Repayment plan lasts 3-5 years
- Must have regular income to qualify
- Higher attorney fees ($2,500-$5,000)
- Must commit all disposable income to the plan
- Failure to make payments can lead to dismissal
- More complex process with ongoing court oversight
Key Difference: Chapter 7 wipes the slate clean quickly but may require giving up property. Chapter 13 takes longer but lets you keep everything while catching up on payments. If you’re behind on your mortgage or car loan and want to keep them, Chapter 13 is typically the better option.
How Much Does Bankruptcy Cost?
The total cost of filing bankruptcy depends on the chapter you choose, the complexity of your case, and where you live.
Chapter 7 Costs
- Court filing fee: $338
- Credit counseling course: $10-$50
- Debtor education course: $10-$50
- Attorney fees: $1,000-$3,000 (flat fee)
- Total estimated cost: $1,400-$3,500
- Filing fee waiver available if income below 150% of poverty line
Chapter 13 Costs
- Court filing fee: $313
- Credit counseling course: $10-$50
- Debtor education course: $10-$50
- Attorney fees: $2,500-$5,000
- Total estimated cost: $2,900-$5,500
- Attorney fees can be rolled into your repayment plan
Attorney fees vary significantly by location:
- Rural areas and smaller cities: $700-$1,500 (Chapter 7)
- Most Midwest and Southern states: $1,000-$2,000 (Chapter 7)
- Major metro areas (NYC, LA, SF, Miami): $1,500-$3,500 (Chapter 7)
- Chapter 13 guideline fees set by most courts range from $2,500-$6,000
Most Chapter 7 attorneys charge a flat fee that must be paid in full before filing. Chapter 13 attorneys typically require an initial deposit ($500-$1,500), with the remaining balance included in your repayment plan — making it more accessible if you can’t pay the full amount upfront.
Can’t afford to file? If your household income is below 150% of the federal poverty guidelines, you can request a complete waiver of the Chapter 7 filing fee using Form 103B. You can also request to pay the filing fee in up to four installments. Additionally, nonprofit organizations like Upsolve offer free Chapter 7 filing assistance.
The Means Test: Do You Qualify for Chapter 7?
The means test was introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 to determine whether you qualify for Chapter 7 or must file Chapter 13 instead. It has two parts:
Step 1: Compare Your Income to the State Median
Calculate your average monthly income over the past 6 months (called Current Monthly Income or CMI). If your CMI is below your state's median income for your household size, you automatically pass the means test and qualify for Chapter 7. The median income varies by state — for example, in 2025 it ranges from approximately $50,000-$60,000 for a single filer to $90,000-$120,000+ for a family of four, depending on the state.
Step 2: Calculate Disposable Income (If Above Median)
If your income exceeds the state median, you must complete the full means test calculation. This subtracts allowed expenses (housing, transportation, food, healthcare, taxes, childcare, and secured debt payments) from your income. If the remaining disposable income is below a certain threshold, you still qualify for Chapter 7. If it's above the threshold, you may be presumed to be 'abusing' the Chapter 7 system and directed to file Chapter 13 instead.
⚠️ Means Test Exceptions
- Disabled veterans whose debts were primarily incurred while on active duty or homeland defense are exempt from the means test
- Non-consumer debts: If the majority of your debt is business-related rather than personal, the means test may not apply
- Special circumstances: You can argue for an exception due to serious medical conditions, active military service, or other circumstances that reduce your ability to pay
What Debts Can Bankruptcy Discharge?
Both Chapter 7 and Chapter 13 can eliminate a wide range of debts, though Chapter 13 can discharge some additional debt types that Chapter 7 cannot.
Commonly Discharged Debts
- Credit card balances
- Medical bills and hospital debt
- Personal loans and payday loans
- Utility bills and phone bills
- Past-due rent and broken leases
- Civil judgments and collections
Secured Debts (Conditional)
- Mortgage deficiency after foreclosure
- Car loan deficiency after repossession
- Can surrender property to eliminate secured debt
- Can reaffirm debt to keep property
- Chapter 13 lets you catch up on arrears
- Second mortgages may be stripped in Ch. 13
Other Dischargeable Debts
- Business debts from sole proprietorship
- Debts from lawsuits and accidents
- Some government overpayments
- Voluntary repossession deficiencies
- Contractual obligations and breach claims
- Homeowners association fees (pre-filing)
Student Loans (Limited)
- Generally NOT dischargeable
- Exception: proof of 'undue hardship'
- 2022 DOJ guidance made discharge easier
- 98% success rate under new guidelines
- Must file adversary proceeding
- Consult an attorney about eligibility
What Debts Cannot Be Discharged?
Certain debts survive bankruptcy and cannot be eliminated regardless of which chapter you file:
🚫 Non-Dischargeable Debts
- Child support and alimony — domestic support obligations are never dischargeable in any chapter of bankruptcy
- Most tax debts — recent income taxes (generally within the last 3 years), payroll taxes, and tax fraud penalties cannot be discharged, though some older tax debts may qualify
- Student loans — unless you can prove 'undue hardship' through an adversary proceeding (though new DOJ guidelines from 2022 have made this significantly easier)
- Debts from fraud or false pretenses — money obtained through fraud, false financial statements, or misrepresentation
- DUI/DWI injury claims — debts arising from death or personal injury caused by drunk driving
- Criminal fines and restitution — court-ordered fines, penalties, and restitution for criminal convictions
- Debts not listed in your petition — any creditor you fail to include in your bankruptcy filing may not have their debt discharged
- Certain condo and HOA fees — post-filing homeowners association fees continue to accrue if you remain in the property
- Government-issued loans for educational benefit — including certain vocational and educational program loans
Bankruptcy Exemptions: What You Can Keep
Bankruptcy exemptions determine which assets you can protect from liquidation. Every state has its own set of exemptions, and some states allow you to choose between state and federal exemptions.
Federal Exemptions (2025)
- Homestead: Up to $27,900 in home equity
- Motor vehicle: Up to $4,450
- Personal property: Up to $700 per item, $14,875 total
- Jewelry: Up to $1,875
- Wildcard: Up to $1,475 + unused homestead (up to $13,950)
- Tools of trade: Up to $2,800
- Retirement accounts: IRAs up to $1,512,350; 401(k)s fully exempt
State Exemptions (Examples)
- Texas homestead: Unlimited value (up to 10 acres urban / 100 acres rural)
- Florida homestead: Unlimited value (up to 1/2 acre urban / 160 acres rural)
- California motor vehicle: Up to $7,500
- New York homestead: $179,950-$399,975 depending on county
- Ohio personal property: Up to $13,400 wildcard
- Some states (e.g., TX, FL) have much more generous exemptions than federal law
In practice, most Chapter 7 filers keep all their property. According to court data, the vast majority of consumer Chapter 7 cases are “no-asset” cases — meaning the trustee finds no non-exempt property to liquidate. Your bankruptcy attorney can advise which exemption system (federal or state) provides better protection for your specific assets.
The Bankruptcy Filing Process
Complete Required Credit Counseling
Federal law requires you to complete an approved credit counseling course within 180 days before filing. The course typically takes 60-90 minutes and costs $10-$50 (fee waivers available). You'll receive a certificate that must be filed with your petition.
Gather Financial Documents
Collect the past 6 months of pay stubs, 2 years of tax returns, bank statements, mortgage and loan statements, vehicle titles, pension/retirement account statements, and a complete list of all debts and creditors.
Hire a Bankruptcy Attorney
While not legally required, 95% of Chapter 7 filers and virtually all Chapter 13 filers hire attorneys. An experienced bankruptcy lawyer ensures your petition is accurate, maximizes your exemptions, and prevents costly mistakes. Most offer free initial consultations.
File the Bankruptcy Petition
Your attorney files the petition, schedules, and statements with the federal bankruptcy court. The automatic stay takes effect immediately upon filing, stopping all collection actions, wage garnishments, lawsuits, and foreclosure proceedings.
Attend the 341 Meeting of Creditors
Approximately 20-40 days after filing, you attend a meeting presided over by your assigned trustee. The meeting is usually brief (15-30 minutes) and involves answering questions about your finances and petition under oath. Creditors may attend but rarely do.
Complete the Debtor Education Course
After filing but before receiving your discharge, you must complete a second required course — a debtor education (financial management) course. This is separate from the pre-filing credit counseling course.
Receive Your Discharge (Chapter 7) or Complete Plan (Chapter 13)
For Chapter 7: The court typically issues a discharge order 60-90 days after the 341 meeting (approximately 3-4 months total). For Chapter 13: You make plan payments for 3-5 years, then receive your discharge after completing all payments.
⚠️ The Automatic Stay: Immediate Protection
The moment your bankruptcy petition is filed, the automatic stay goes into effect. This federal injunction immediately stops:
- Wage garnishments — your full paycheck is protected
- Creditor lawsuits — all pending civil actions are halted
- Foreclosure proceedings — your home sale is paused (Chapter 13 can stop it permanently)
- Vehicle repossession — creditors cannot seize your car
- Collection calls and letters — all creditor contact must cease
- Bank account levies — frozen accounts may be released
- Utility shutoffs — service disconnections are paused for 20 days
How Bankruptcy Affects Your Credit
Bankruptcy does impact your credit — but the effect is often less devastating than people fear, especially if your credit is already damaged by missed payments, collections, and high debt balances.
Credit score impact:
- Chapter 7 remains on your credit report for 10 years from the filing date
- Chapter 13 remains on your credit report for 7 years from the filing date
- Initial credit score drop is typically 130-240 points, depending on your starting score
- People with higher scores before filing experience a larger point drop
- Many filers see credit score improvement within 12-18 months after discharge as the debt-to-income ratio improves dramatically
Rebuilding credit after bankruptcy:
Most bankruptcy filers can qualify for a secured credit card immediately after discharge, a car loan within 2-3 years, an FHA mortgage within 2 years after Chapter 7 discharge (or 1 year into a Chapter 13 plan with court permission), and a conventional mortgage within 4 years after Chapter 7 or 2 years after Chapter 13 discharge.
Perspective: For many filers, the credit impact of bankruptcy is actually less severe than continuing to accumulate late payments, defaults, collections, and judgments. Bankruptcy provides a defined starting point for credit rebuilding, while ongoing debt distress causes continuous and unpredictable credit damage.
Alternatives to Bankruptcy
Bankruptcy is a powerful tool, but it’s not the only option for dealing with overwhelming debt. Consider these alternatives:
Debt Negotiation/Settlement
- Negotiate directly with creditors for reduced balances
- Typically settle for 25-50% of the original amount
- Can hire a debt settlement company or attorney
- Forgiven debt may be taxable income
- Negative impact on credit but less than bankruptcy
Debt Consolidation
- Combine multiple debts into one loan
- Potentially lower interest rate
- Single monthly payment simplifies budgeting
- Requires qualifying credit score
- Doesn't reduce total debt amount
Credit Counseling / DMP
- Nonprofit agency negotiates with creditors
- Debt management plan (DMP) over 3-5 years
- May reduce interest rates and waive fees
- You make one monthly payment to agency
- No impact on credit score (if payments made)
Other Options
- Loan modification (for mortgage struggles)
- Hardship programs from creditors
- Selling assets voluntarily to pay debts
- Increasing income through side work
- Waiting out the statute of limitations on old debt
When bankruptcy is clearly the better option: If your total unsecured debt exceeds what you can realistically repay in 5 years, if creditors are garnishing your wages or threatening foreclosure, if you’re using credit cards for basic necessities, or if you’re being sued by multiple creditors — bankruptcy likely offers the most efficient path to financial recovery.
How to Choose a Bankruptcy Lawyer
Finding the right bankruptcy attorney is critical to a successful filing. Here’s what to look for:
Experience & Specialization
- Focuses primarily on bankruptcy law
- Handles your specific chapter (7 or 13)
- Experience with local bankruptcy court and trustees
- Track record of successful discharges
Transparent Pricing
- Clear flat fee for Chapter 7 cases
- Written fee agreement before hiring
- Payment plan options available
- No hidden charges for court appearances or trustee meetings
Communication
- Offers free initial consultation
- Explains options clearly without legal jargon
- Responsive to calls and emails
- Takes time to understand your full financial picture
Red Flags to Avoid
- Guarantees a specific outcome before reviewing your case
- Pressures you to file immediately without full analysis
- Charges significantly below market rate (may indicate inexperience)
- Won't provide a written fee agreement
Questions to ask during a free consultation:
- Which chapter of bankruptcy do you recommend for my situation, and why?
- How many bankruptcy cases have you handled in this court?
- What is your flat fee, and what does it include?
- Do you offer payment plans?
- Will you personally handle my case, or will it be delegated to a paralegal?
- How long do you expect the process to take?
- Are there any risks or complications you see in my case?
- What should I do (and avoid doing) before filing?
Frequently Asked Questions
Chapter 7 eliminates most unsecured debts within 3-4 months by potentially liquidating non-exempt assets — though most filers keep everything. Chapter 13 creates a court-supervised 3-5 year repayment plan that lets you keep all your property while paying back a portion of your debts. Chapter 7 requires passing the means test, while Chapter 13 requires regular income.
Chapter 7 costs approximately $1,400-$3,500 total (including the $338 filing fee, $20-$100 for required courses, and $1,000-$3,000 in attorney fees). Chapter 13 costs $2,900-$5,500 total ($313 filing fee plus $2,500-$5,000 in attorney fees). Chapter 7 filing fees can be waived for low-income filers, and Chapter 13 attorney fees can be rolled into your repayment plan.
Not necessarily. In Chapter 13, you can keep your home and use the repayment plan to catch up on missed mortgage payments. In Chapter 7, you can keep your home if the equity is within your state's homestead exemption. Texas and Florida, for example, offer unlimited homestead exemptions. If you're current on payments and your equity is protected, you'll keep your home in either chapter.
Chapter 7 bankruptcy remains on your credit report for 10 years from the filing date. Chapter 13 stays for 7 years. However, the negative impact diminishes over time, and many filers begin rebuilding credit within 12-18 months after discharge. You can typically qualify for an FHA mortgage within 2 years after Chapter 7.
Yes, immediately. The automatic stay that takes effect the moment your bankruptcy petition is filed stops all wage garnishments. In Chapter 7, the underlying debt is typically discharged, ending the garnishment permanently. In Chapter 13, the debt is incorporated into your repayment plan. This is one of the most immediate and powerful benefits of filing for bankruptcy.
Yes. The automatic stay halts foreclosure proceedings immediately upon filing. Chapter 13 is particularly effective for saving your home because it allows you to cure mortgage arrears through your 3-5 year repayment plan while staying current on ongoing payments. Chapter 7 can pause foreclosure temporarily but cannot save your home long-term if you're unable to get current on the mortgage.
Debts that survive bankruptcy include child support and alimony, most recent tax debts (within the last 3 years), student loans (unless you prove undue hardship), debts from fraud or false pretenses, DUI/DWI injury claims, criminal fines and restitution, and debts not listed in your petition. However, recent DOJ guidelines from 2022 have made student loan discharge significantly more accessible.
While not legally required, hiring an attorney is strongly recommended. 95% of Chapter 7 filers use an attorney, and the success rate for Chapter 13 cases filed without an attorney is very low. An experienced bankruptcy lawyer ensures your petition is accurate, maximizes your exemptions, prevents costly mistakes, and guides you through the 341 meeting and discharge process.
Chapter 7 typically takes 3-4 months from filing to discharge. Chapter 13 takes 3-5 years because it involves completing a court-approved repayment plan. The pre-filing preparation (gathering documents, completing credit counseling, and working with your attorney) usually takes 2-4 weeks.
Yes. Medical debt is unsecured debt and is fully dischargeable in both Chapter 7 and Chapter 13 bankruptcy. Medical bills are one of the leading causes of personal bankruptcy filings in the United States. If medical debt is your primary concern and your income is low enough, Chapter 7 can eliminate it completely in just 3-4 months.
Overwhelmed by Debt? Get Expert Help
Bankruptcy can provide the fresh financial start you need. An experienced bankruptcy attorney can evaluate your situation, explain your options, and guide you through the process from start to finish. Most offer free initial consultations.
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