If you are struggling with debt, you may have already searched online for one question:
“Should I file Chapter 7 or Chapter 13 bankruptcy?”
It is an important question, but there is no universal answer.
Chapter 7 and Chapter 13 bankruptcy serve different purposes. Your income, debts, assets, property, financial goals, and ability to repay creditors can all affect which option makes sense for your circumstances.
For someone dealing with overwhelming credit card debt, medical bills, collection calls, lawsuits, or financial problems following a major life event, understanding the difference between the two can make the next step much less confusing.
At New Horizons Financial Law, PLLC (NHFL), Managing Attorney Chris Williamson helps individuals understand their options when debt and consumer financial problems become difficult to manage.
NHFL serves clients in Tulsa, Oklahoma; Dallas–Fort Worth, Texas; and Raleigh, North Carolina.
Chapter 7 vs. Chapter 13 at a Glance
Here is the simplest way to understand the difference:
| Chapter 7 | Chapter 13 |
|---|---|
| Often focuses on obtaining a discharge of qualifying debts | Uses a court-approved repayment plan |
| Usually completed much faster than Chapter 13 | Generally involves a 3–5 year repayment plan |
| Eligibility requirements apply | Generally requires regular income sufficient to fund a plan |
| Certain property may be protected by applicable exemptions | Can provide a way to address certain debts over time |
| Often considered by people who cannot realistically repay their unsecured debts | Often considered by people who have regular income and need time to catch up or reorganize debts |
But the table only tells part of the story.
Your individual circumstances matter.
What Is Chapter 7 Bankruptcy?
Chapter 7 is often associated with the idea of eliminating debt.
In a successful Chapter 7 case, eligible debts may be discharged, meaning the debtor is generally no longer personally liable for those debts. However, not every debt can be discharged, and bankruptcy does not necessarily eliminate a valid lien against property.
Chapter 7 may be considered by someone dealing with substantial unsecured debt, such as certain:
- Credit card balances
- Medical bills
- Personal loans
- Collection accounts
- Other qualifying unsecured debts
However, filing Chapter 7 is not simply a matter of deciding that you have too much debt.
There are eligibility requirements and other legal considerations.
For example, the means test may be relevant in determining whether an individual debtor qualifies for Chapter 7. The calculation considers income and allowable expenses under federal bankruptcy rules.
That means two people with the same amount of credit card debt may have completely different bankruptcy options.
What Happens to Your Property in Chapter 7?
This is one of the biggest fears people have before contacting a bankruptcy attorney:
“Am I going to lose my house or my car?”
Not necessarily.
Bankruptcy law allows certain property to be protected through exemptions. Which exemptions apply and how they affect your particular property depends on the circumstances of your case, including applicable state law.
That is why an attorney should review your assets before you file.
You don’t want to make a major legal decision based on something you read in a generic online article.
What Is Chapter 13 Bankruptcy?
Chapter 13 takes a different approach.
Instead of immediately seeking a Chapter 7-style liquidation and discharge, Chapter 13 allows eligible individuals with regular income to propose a repayment plan.
The plan generally lasts three to five years, during which the debtor makes payments according to the plan approved by the bankruptcy court.
This can make Chapter 13 particularly relevant for someone who has income but is struggling to keep up with accumulated financial obligations.
For example, imagine you have fallen behind on your mortgage.
You are earning enough money to support your household, but the missed payments have created a debt that you cannot realistically pay all at once.
Chapter 13 may provide a legal framework for addressing certain arrears through a repayment plan.
It is not a magic button, and there are strict requirements and procedures. But for the right person, it can provide an alternative to simply allowing the financial situation to continue getting worse.
Which Is Better: Chapter 7 or Chapter 13?
This is where things get interesting.
There isn’t a universal winner.
The better question is:
Which bankruptcy chapter fits your financial circumstances and goals?
Chapter 7 may be worth exploring if:
- You have substantial unsecured debt.
- Your income and circumstances allow you to qualify.
- You have little ability to repay your debts.
- You are dealing with overwhelming credit card or medical debt.
- Collection activity has become difficult to manage.
- You want to pursue a discharge of qualifying debts.
Chapter 13 may be worth exploring if:
- You have regular income.
- You need time to repay certain debts.
- You are behind on your mortgage or other secured obligations.
- You want to address qualifying debts through a repayment plan.
- Chapter 7 isn’t available or doesn’t accomplish your goals.
- Protecting certain property is an important consideration.
Again, these are general considerations, not a determination of which chapter you should file.
That decision requires an individual review.
What If You Are Behind on Your House Payments?
This is one situation where the difference between Chapter 7 and Chapter 13 can become particularly important.
If you are behind on your mortgage, simply filing Chapter 7 may not provide the same type of repayment structure available through Chapter 13.
Chapter 13 can allow eligible debtors to address certain past-due mortgage payments through a repayment plan while continuing to make ongoing mortgage payments, subject to the requirements of the bankruptcy process.
So if your biggest concern is:
“I don’t want to lose my home, but I can’t catch up all at once,”
you should discuss your circumstances with a bankruptcy attorney before assuming Chapter 7 is your only option.
What About Your Car?
A vehicle can be another major concern.
If you are behind on your car payments, the appropriate bankruptcy strategy can depend on several factors, including:
- How far behind you are
- The vehicle’s value
- The amount you owe
- Your income
- Whether you want to keep the vehicle
- The terms of your loan
- Applicable bankruptcy rules
Chapter 13 may provide certain mechanisms for addressing secured debt through a repayment plan.
But the details matter.
Before filing, an attorney should review your vehicle loan and your overall financial picture rather than looking at the car debt in isolation.
Does Bankruptcy Stop Creditor Calls and Collection Actions?
In many bankruptcy cases, the automatic stay takes effect when the bankruptcy petition is filed.
The automatic stay generally prevents creditors from continuing many collection actions, including certain lawsuits, garnishments, and collection efforts. However, there are exceptions, and the stay does not stop every possible action in every circumstance.
For someone receiving constant collection calls, this can be one of the most important aspects of bankruptcy.
But here’s something else to consider:
Not every collection problem means you should file bankruptcy.
Consumer-credit law may provide separate protections depending on what the creditor or debt collector has done.
For example, questions about inaccurate credit reporting, disputed debts, debt-collection conduct, or other consumer-credit issues may require a different legal approach.
That is why a comprehensive review can be valuable.
What If Bankruptcy Isn’t the Right Answer?
This is an important part of the conversation that often gets overlooked.
A good bankruptcy attorney should not treat bankruptcy as the answer to every financial problem.
Depending on your circumstances, alternatives may include:
- Negotiating with creditors
- Addressing collection activity
- Challenging inaccurate information
- Resolving consumer-credit issues
- Developing a repayment strategy
- Exploring other available legal options
The goal should not simply be:
“File bankruptcy.”
The goal should be:
“Find the most appropriate legal solution for your financial situation.”
Does Your Location Matter?
Yes.
Although bankruptcy is governed primarily by federal law, state-specific rules and local bankruptcy procedures can affect a person’s case, particularly when property and exemptions are involved.
This is especially important if you live in or have significant connections to Oklahoma, Texas, or North Carolina.
NHFL works with clients in:
Tulsa, Oklahoma
If you are struggling with debt in Tulsa or elsewhere in Oklahoma, understanding how applicable exemptions and local bankruptcy procedures affect your circumstances can be an important part of evaluating Chapter 7 or Chapter 13.
Dallas–Fort Worth, Texas
The Dallas–Fort Worth area includes a large and diverse population dealing with everything from credit card debt to mortgage problems and creditor collection actions.
If you are considering bankruptcy in Texas, your assets, debts, income, and financial objectives should be reviewed before choosing a bankruptcy chapter.
Raleigh, North Carolina
For individuals dealing with overwhelming debt in Raleigh and surrounding communities, Chapter 7 and Chapter 13 may offer different potential solutions depending on the person’s financial circumstances.
The right answer isn’t determined simply by where you live.
It is determined by your complete financial picture and the laws applicable to your case.
Questions to Ask Before Choosing Chapter 7 or Chapter 13
Before making a decision, ask yourself:
1. How much debt do I actually have?
Don’t estimate. Gather your statements, collection letters, credit reports, and loan information.
2. What type of debt do I have?
Credit cards, medical bills, mortgages, vehicle loans, tax obligations, student loans, and other debts can receive different treatment under bankruptcy law.
3. What property do I own?
Your home, vehicle, bank accounts, investments, and other assets may affect your bankruptcy analysis.
4. What is my household income?
Income is an important part of determining eligibility and evaluating repayment options.
5. What am I trying to accomplish?
Do you primarily want to eliminate unsecured debt?
Do you need time to catch up on your mortgage?
Are you trying to stop collection activity?
Are you concerned about protecting particular property?
Your objective matters.
Don’t Choose a Bankruptcy Chapter Based on a Google Search
Searching “Chapter 7 vs Chapter 13” is a good place to start.
It is not a substitute for legal advice.
Bankruptcy decisions can affect your property, debts, credit, financial obligations, and future options. A mistake made before filing can sometimes be difficult to undo.
Managing Attorney Chris Williamson of New Horizons Financial Law, PLLC helps individuals evaluate bankruptcy and consumer-credit issues with their broader financial situation in mind.
With experience involving financial services, collections operations, legal-risk evaluation, and consumer financial matters, Chris approaches these problems from the perspective of understanding both the legal issue and the financial circumstances behind it.
If you are located in Tulsa, OK; Dallas–Fort Worth, TX; or Raleigh, NC, and you are trying to determine whether Chapter 7 or Chapter 13 may be appropriate, the first step is to understand your options.
You don’t have to decide alone.
Schedule a consultation with New Horizons Financial Law, PLLC to discuss your debt, your goals, and the bankruptcy options that may be available to you.
Frequently Asked Questions
Is Chapter 7 better than Chapter 13?
Not necessarily. Chapter 7 and Chapter 13 serve different purposes. The appropriate option depends on factors such as your income, debts, assets, and financial goals.
Can I keep my house if I file bankruptcy?
Possibly. Whether you can keep your home depends on your circumstances, applicable exemptions, mortgage status, and the bankruptcy chapter involved.
Can bankruptcy stop creditor harassment?
The automatic stay generally stops many collection actions after a bankruptcy case is filed, although exceptions apply. Other consumer-credit laws may also apply depending on the creditor’s conduct.
How long does Chapter 13 bankruptcy last?
A Chapter 13 repayment plan generally lasts three to five years.
Will Chapter 7 eliminate all of my debt?
No. Some debts are not dischargeable under bankruptcy law, and certain liens can survive bankruptcy.
Should I file bankruptcy if I am only behind on my credit cards?
Not necessarily. Your overall financial situation should be reviewed before deciding whether bankruptcy is appropriate.
Can I file bankruptcy if I have a job?
Yes, employment does not automatically prevent someone from filing bankruptcy. Your income and other circumstances can affect which chapter you qualify for and which option may be appropriate.
Should I wait until a creditor sues me before contacting an attorney?
No. Waiting can unnecessarily limit your options. If you are struggling with debt or facing collection action, getting legal advice earlier may help you understand what can be done.
