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Last reviewed: 14 September 2026

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Chapter 7 vs. Chapter 13 bankruptcy: what actually differs

Bankruptcy is usually treated, understandably, as the option people consider only after credit repair, debt settlement, or a debt management plan hasn't worked or doesn't fit. It's also one of the least-understood options on this list — most people know the general idea ("wipe out debt") without knowing there are two consumer bankruptcy chapters that work in genuinely different ways, decide different things about what you keep and what you still owe afterward, and interact with your credit report differently than the timeline most people assume. This page isn't legal advice for your specific situation — a bankruptcy attorney or a nonprofit legal-aid clinic is the right next call for that — but the mechanics below are worth understanding before that call.

Liquidation vs. a repayment plan — the basic difference

Chapter 7, sometimes called "liquidation bankruptcy," is built around selling a filer's non-exempt assets to pay creditors, then discharging — legally erasing — most of what's left unpaid, typically within three to four months of filing. In practice, most individual Chapter 7 filers keep everything they own, because federal and state exemption laws — a homestead exemption, a vehicle exemption, exemptions for retirement accounts and tools of a trade, among others — protect most or all of an ordinary household's property from the trustee assigned to the case.

Chapter 13, sometimes called a "wage earner's plan," doesn't liquidate anything. Instead, the filer proposes a repayment plan, confirmed by the bankruptcy court, that pays creditors some portion of what's owed — anywhere from a small percentage to the full balance, depending on income, assets, and debt type — over a period of three to five years, with remaining eligible unsecured debt discharged only after the plan is completed. It's a longer, more involved process, and one built for someone trying to stop a foreclosure or repossession while catching up on missed mortgage or car payments over the life of the plan, rather than someone with no ongoing income to work with.

The means test: what decides which one you can even file

Not everyone gets to choose. Chapter 7 eligibility runs through a means test under 11 U.S.C. § 707(b), applied using standardized figures the U.S. Department of Justice's U.S. Trustee Program publishes and updates: if a filer's average income over the six months before filing is at or below their state's median income for their household size, they generally pass the means test automatically and can file Chapter 7. Income above the median triggers a more detailed disposable-income calculation that can still qualify a higher earner for Chapter 7, route the case toward Chapter 13 instead, or in some cases lead a judge to dismiss the case as an abuse of the chapter.

Chapter 13 instead requires "regular income" and comes with its own debt ceiling under 11 U.S.C. § 109(e), adjusted periodically by statute. For cases filed between 1 April 2025 and 31 March 2028, the limits are $1,580,125 in secured debt and $526,700 in unsecured debt; debt above those figures isn't eligible for Chapter 13 at all. (A temporary, higher combined $2.75 million threshold applied to cases filed through June 2024 and has since expired; legislation to raise the limits again was pending in Congress as of this writing.) For almost anyone in ordinary consumer debt trouble — credit cards, medical bills, personal loans — this ceiling isn't close to binding; it mainly matters for someone also carrying a large mortgage or business-related debt.

What each one discharges — and what neither does

A discharge in either chapter releases the filer from personal liability for the debts it covers, but it isn't a total wipe. Several categories are excluded from discharge in both chapters under 11 U.S.C. § 523(a), including: most federal, state, and local taxes for which a return was due within roughly the past three years, or never filed; domestic support obligations like child support and spousal support (§ 523(a)(5)); most federal and private student loans, absent a separate "undue hardship" showing that courts apply narrowly (§ 523(a)(8)); and debt obtained through fraud or false pretenses (§ 523(a)(2)). Chapter 13 discharges a small number of debts Chapter 7 doesn't — most notably certain debts arising from a divorce property settlement, and debts for willful and malicious injury to property rather than to a person — which is one of the specific, narrow reasons someone eligible for Chapter 7 might still choose Chapter 13.

The automatic stay — the one thing neither credit repair nor debt settlement gives you

Filing either chapter triggers an automatic stay under 11 U.S.C. § 362, effective the moment the petition is filed, which immediately halts most pending creditor actions: lawsuits, wage garnishments, bank levies, repossessions, and most collection calls and letters. That's a real, specific difference from debt settlement, which — as covered in our explainer on what to actually expect from debt settlement — creates no such protection and leaves an enrollee fully exposed to being sued while a settlement is negotiated. The stay isn't permanent or absolute — a secured creditor can ask the court to lift it, and it doesn't reach ongoing criminal proceedings or most family-court support cases — but it's immediate and real, and nothing else covered on this site works the same way.

How long it actually shows on your credit report — and the detail most people get wrong

Under the Fair Credit Reporting Act, 15 U.S.C. § 1681c(a)(1), a bankruptcy case may be reported for up to 10 years from the date of the order for relief — the filing date, in most cases — and that 10-year ceiling applies to bankruptcy generally, without the statute itself distinguishing between chapters. The commonly repeated claim that "Chapter 13 only stays on your report for 7 years" isn't a legal rule at all — it's a voluntary practice the three nationwide credit bureaus adopted on their own, reflecting that a completed Chapter 13 plan pays creditors something, unlike a Chapter 7 discharge. Equifax was the outlier here for years, continuing to report Chapter 13 for the full 10 years — including for filers whose plan was never completed — rather than 7, and changed its own internal policy to match Experian and TransUnion only after journalists asked about the discrepancy in 2017. The 7-year figure is real in practice at all three bureaus today — but it's each bureau's own choice, not a statutory floor, and nothing stops a bureau from changing it again.

A bankruptcy is still a public record either way. Unlike a civil judgment or a tax lien — see our explainer on why those generally don't appear on a credit report anymore — a bankruptcy filing is still routinely reported by all three bureaus, because federal bankruptcy court filings carry the identifying information (full legal name, Social Security number) the bureaus require before including a public record at all. Don't assume a bankruptcy will be quietly invisible the way a judgment often now is.

What to actually check

Related: if a lawsuit is what's pushing you toward bankruptcy in the first place, see what actually happens when you're sued for a debt for the deadlines and defenses that apply before you file anything, and what to actually expect from debt settlement for the different, non-court alternative most people consider first.

References

  1. Fair Credit Reporting Act, 15 U.S.C. § 1681c(a)(1) (bankruptcy cases reportable up to 10 years from the date of entry of the order for relief or adjudication; no statutory distinction between bankruptcy chapters).
  2. Bankruptcy Code, 11 U.S.C. § 707(b) (Chapter 7 means test) and U.S. Department of Justice, Executive Office for U.S. Trustees, "Means Testing" published median-family-income and allowed-expense figures.
  3. Bankruptcy Code, 11 U.S.C. § 109(e) (Chapter 13 eligibility and debt-limit figures, most recently adjusted for cases filed 1 April 2025 through 31 March 2028) and § 1322(d) (plan-length rule: three years for a below-median-income filer absent cause shown to the court, up to five years for an above-median-income filer, five years the statutory maximum in either case).
  4. Bankruptcy Code, 11 U.S.C. § 362 (automatic stay) and § 523(a)(2), (a)(5), (a)(8) (exceptions to discharge for fraud, domestic support obligations, and most student loans, respectively).
  5. Administrative Office of the U.S. Courts, "Chapter 7 Bankruptcy Basics" and "Chapter 13 Bankruptcy Basics" (uscourts.gov), cross-checked against Nolo's Legal Encyclopedia and NACTT Academy (National Association of Chapter Thirteen Trustees) practitioner explainers for means-test and plan-length mechanics.
  6. ProPublica, "Equifax Makes Bankruptcy Change That Affects Hundreds of Thousands" (2 November 2017), reporting Equifax's shift from a 10-year to a 7-year Chapter 13 reporting policy following press inquiry — illustrating that the 7-year Chapter 13 practice is a bureau policy choice, not a statutory requirement.

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