Quick Answer
Chapter 7 wipes out qualifying unsecured debt in roughly three to five months, but you must pass an income-based means test and you risk losing property that exemptions do not protect. Chapter 13 does not erase debt immediately. It reorganizes it into a three to five year court-supervised repayment plan, and its principal advantage is stopping a foreclosure and letting you catch up on missed mortgage payments over time.
Stated simply, Chapter 7 is for people whose income cannot support repayment. Chapter 13 is for people with steady income who need to protect an asset they would otherwise lose.
Filings Are Rising Sharply
Annual bankruptcy filings totaled 574,314 in the year ending December 2025, an 11 percent increase over the 517,308 cases filed in the previous year.<sup>1</sup> Non-business filings rose 11.2 percent to 549,577, which means the overwhelming majority of filings are households rather than companies.<sup>1</sup>
The chapter split shows where people are landing. Chapter 7 filings rose 15 percent to 344,825 and accounted for 62 percent of all cases, while Chapter 13 filings increased 4 percent to 203,118, about 36 percent of the total.<sup>2</sup> The faster growth in Chapter 7 suggests that a rising share of filers lack the income needed to support a repayment plan at all.
Chapter 7: The Liquidation Path
In a Chapter 7 case a court-appointed trustee reviews your assets, sells anything not protected by exemptions, distributes the proceeds to creditors, and the court discharges your remaining qualifying debt. The process typically runs three to five months from filing to discharge, and most consumer cases involve a single brief meeting of creditors rather than any courtroom appearance.
Qualifying requires passing the means test. If your household income falls below the median for your household size in your state, you qualify automatically. If it exceeds the median, a second calculation compares your income against allowed expense standards to determine whether you have meaningful disposable income available to repay creditors. Failing the means test generally pushes you toward Chapter 13.
What you keep is governed by exemptions, and these vary enormously by state. Some states allow you to choose between the state exemption scheme and the federal one. Others require you to use state exemptions exclusively. Homestead exemptions range from a few thousand dollars in some states to unlimited value in others. Vehicle, retirement account, tools of trade, and household goods exemptions all differ as well, and residency requirements determine which state's exemptions apply if you moved recently.
In practice most consumer Chapter 7 cases are no-asset cases, meaning exemptions cover everything the filer owns and nothing is sold. But that outcome depends entirely on your state's exemption law and on how much equity you hold, which is why an accurate valuation matters before you file.
Chapter 7 has one significant limitation. It does not stop a foreclosure permanently. The automatic stay pauses collection while the case is open, but if you are behind on a mortgage and want to keep the house, Chapter 7 provides no mechanism to catch up on the arrears.
Chapter 13: The Reorganization Path
In a Chapter 13 case you propose a plan to repay some or all of your debt over three to five years out of future income. The court confirms the plan, you make monthly payments to a trustee who distributes them to creditors, and any remaining qualifying debt is discharged when the plan is completed.
Qualifying requires regular income sufficient to fund a plan, and your secured and unsecured debts must fall below statutory limits that adjust periodically for inflation.
People choose Chapter 13 for reasons Chapter 7 cannot address. Mortgage arrears can be cured over the life of the plan while you make current payments going forward, which is the single most common reason people file Chapter 13. Nonexempt property can be retained by paying creditors its value over time instead of surrendering it. Chapter 13 remains available when income is too high to pass the means test. In some circumstances a wholly unsecured junior mortgage can be stripped off. Certain secured debts, notably vehicles purchased more than 910 days before filing, can sometimes be reduced to the value of the collateral through a cramdown. And the co-debtor stay can protect someone who guaranteed a consumer debt on your behalf.
The tradeoff is real. Chapter 13 is a multi-year commitment on a strict payment schedule, and a significant share of cases are dismissed before completion when filers cannot sustain the payments. Dismissal means the debt returns, often with accrued interest, and the time spent in the plan is largely lost.
What Neither Chapter Erases
This catches many people off guard. Debts that generally survive both chapters include most student loans absent a showing of undue hardship, child support and spousal support obligations, most recent tax debts although older income taxes can sometimes be discharged, debts arising from fraud or embezzlement or intentional injury, criminal fines and restitution, debts arising from personal injury caused by drunk driving, and any debt you failed to list in your filing.
Secured debts are a separate category. Bankruptcy can eliminate your personal liability on a mortgage or car loan, but it does not remove the lien. If you want to keep the collateral, you keep paying for it.
What Bankruptcy Does Immediately
The automatic stay takes effect the moment your petition is filed. It halts collection calls, wage garnishment, bank levies, repossession, utility shutoffs, and most lawsuits and foreclosure sales. That relief is instant and applies in both chapters, and it is frequently the most valuable thing a filing provides in the first week.
There are exceptions. The stay does not stop criminal proceedings, most child support collection, or certain tax actions, and it can be shortened or denied if you have had prior cases dismissed recently.
Credit Consequences and Timing
A Chapter 7 remains on your credit report for ten years from the filing date. A Chapter 13 remains for seven years. Both cause an immediate score drop, though people already deep in delinquency frequently see less additional damage than they expect and begin rebuilding sooner, because the discharge removes the underlying delinquent accounts.
Filing frequency is limited by statute. You generally must wait eight years between Chapter 7 discharges, with shorter waiting periods applying to other chapter combinations.
Timing matters more than most people realize. An expected bonus, inheritance, tax refund, or change in income can significantly affect both eligibility and outcome, which is why the decision of when to file is often as important as which chapter to choose.
Before You File
Federal law requires credit counseling from an approved agency within 180 days before filing, and a financial management course before discharge. Both are inexpensive and can usually be completed online in a couple of hours.
Consider whether an alternative fits better. Negotiated settlement with creditors, a debt management plan through a nonprofit counseling agency, or simply waiting if your circumstances are about to change may serve you better than a filing that stays on your record for a decade.
Gather documents early. You will need pay stubs, tax returns, a complete list of debts and creditors, account statements, vehicle titles, and property valuations. Incomplete schedules cause delays and can jeopardize the discharge.
Frequently Asked Questions
Will I lose my house?
Not necessarily in either chapter. It depends on your state's homestead exemption, how much equity you hold, and whether you are current on payments. Chapter 13 is the better tool when you are behind.
Will I lose my car?
If you are current and the equity is exempt, you can typically keep it by continuing payments or reaffirming the loan. Chapter 13 offers more options when you are behind.
Can I file without an attorney?
Legally yes. Practically, self-filed Chapter 13 cases are dismissed at very high rates because plan confirmation is technical. Chapter 7 is more manageable alone, but exemption mistakes are permanent.
Does my spouse have to file too?
No. You can file individually. Whether that is wise depends on whose name the debts are in and whether you live in a community property state.
How much does bankruptcy cost?
Court filing fees run several hundred dollars, and fee waivers are available for low-income filers. Attorney fees vary by structure and case type, and Chapter 13 attorney fees are frequently paid through the plan rather than upfront.
Does everyone find out?
Bankruptcy filings are public records but they are not published or announced. In practice, employers and neighbors do not learn about it absent a specific search.
Can I keep a credit card if I stay current on it?
Generally no. All debts must be listed, and issuers routinely close accounts upon learning of a filing even if the balance is zero.
Will bankruptcy stop a wage garnishment?
Yes, immediately upon filing for most consumer debts. Child support garnishments are an exception.
Can I buy a house after bankruptcy?
Yes. Waiting periods vary by loan program, commonly two to four years after discharge, and shorter for some government-backed loans with documented extenuating circumstances.
What happens to my tax refund?
It may be treated as an asset of the estate if it is attributable to income earned before filing. Exemptions may protect it, and timing the filing around refund season is a common planning consideration.
Considering a filing? Compare verified bankruptcy attorneys in your city at BestLocalLaw.com. Most offer free consultations and can tell you within one meeting which chapter fits your situation.