Chapter 7 and Chapter 13 are the two types of bankruptcy most individuals use. Chapter 7 wipes out most unsecured debts — such as credit cards, medical bills, and personal loans — in about three to six months, but any property that isn’t protected by exemptions can be sold to pay creditors, and you must qualify under a “means test.” Chapter 13 sets up a three- to five-year court-supervised repayment plan that lets you keep your property and catch up on missed mortgage or car payments. Both stop most collection activity the moment you file, and both stay on your credit report — Chapter 7 for ten years, Chapter 13 for seven.

Bankruptcy is a legal tool, not a moral failure. It exists because debts sometimes become impossible to repay. This guide explains how each chapter works, who qualifies, what it costs, which debts survive it, and how to rebuild afterward, so you can have an informed conversation with a bankruptcy attorney.

Two chapters, two very different paths to a fresh start.

Key takeaways

• Chapter 7 discharges most unsecured debt quickly but requires passing the means test.
• Chapter 13 lets you keep property and catch up on secured debts through a repayment plan.
• Filing triggers an automatic stay that stops most collection, lawsuits, and garnishments.
• Some debts — like child support and most student loans — usually survive bankruptcy.
• Chapter 7 stays on your credit report for 10 years; Chapter 13 for 7 years.
• Rebuilding often starts within months of discharge.

What Bankruptcy Does

Bankruptcy is a federal court process that gives people who can’t pay their debts a way to either eliminate them or repay them under court protection. Two things make it powerful:

The automatic stay

As soon as you file, an automatic stay takes effect. It generally stops creditors from:

• Calling or writing to collect
• Continuing lawsuits
• Garnishing your wages
• Levying your bank accounts
• Repossessing your car
• Completing a foreclosure sale

The automatic stay is one of bankruptcy’s most important protections.

The stay doesn’t stop everything — child support collection and some criminal proceedings continue, for example — and creditors can ask the court for permission to proceed in certain situations. People who have filed multiple cases recently may get a shorter or no automatic stay.

The discharge

At the end of a successful case, the court issues a discharge, which permanently releases you from personal liability for eligible debts. Creditors can never collect a discharged debt from you again.

Chapter 7 Bankruptcy: How It Works

Chapter 7 is sometimes called liquidation bankruptcy, but most people who file don’t lose much property, because exemptions protect a large share of what they own.

The Chapter 7 process from counseling to discharge.

Step 1: Credit counseling

Before filing, you must complete a credit counseling course from an approved provider, generally within 180 days before your case is filed. It reviews your budget and alternatives to bankruptcy.

Step 2: File the petition

You file a petition along with schedules listing your income, expenses, assets, debts, and recent financial transactions. The automatic stay begins immediately.

Step 3: The trustee reviews your case

A court-appointed trustee reviews your paperwork and looks for non-exempt assets that could be sold to pay creditors.

Step 4: The meeting of creditors

About a month after filing, you attend a short meeting — often called the 341 meeting — where the trustee asks questions under oath. Creditors can attend but usually don’t. Many of these meetings take only a few minutes.

Step 5: Debtor education

Before discharge, you must complete a second course on personal financial management.

Step 6: Discharge

If there are no objections, the court generally issues your discharge a few months after filing. The entire process typically takes three to six months.

Who qualifies: the means test

Chapter 7 is designed for people who can’t afford to repay their debts. The means test compares your household income with the median income for a household of your size in your state. If your income is below the median, you generally qualify. If it’s above, you complete a more detailed calculation of your expenses to see whether you have enough disposable income to repay creditors through Chapter 13 instead.

What happens to your property

Each state provides exemptions that protect certain property, such as equity in your home, a vehicle up to a certain value, household goods, tools of your trade, and retirement accounts. California offers two different sets of exemptions, and you choose the one that protects more of your property — one tends to favor homeowners with equity, and the other often works better for renters. An attorney can help you choose.

Property that isn’t protected can be sold by the trustee, with proceeds paid to creditors. In many consumer Chapter 7 cases, everything is exempt and nothing is sold.

What happens to your house and car

If you’re current on your mortgage or car loan and want to keep the property, you can generally do so by continuing to pay, provided the equity is protected. Chapter 7 doesn’t give you a way to catch up on missed payments over time — if you’re behind, the lender may eventually be able to foreclose or repossess after the case.

Chapter 13 Bankruptcy: How It Works

Chapter 13 is sometimes called a wage earner’s plan. Instead of liquidating assets, you propose a plan to repay some or all of your debts over three to five years.

Who qualifies

You need regular income and debts within limits set by federal law. People often choose Chapter 13 because:

• Their income is too high for Chapter 7
• They’re behind on a mortgage and want to keep the home
• They have property that isn’t fully protected by exemptions
• They have debts Chapter 7 can’t eliminate, such as recent tax debts, that they want to repay over time
• They want to protect a co-signer from collection

How the plan works

Your plan length depends largely on your income: often three years if you’re below your state’s median income and five years if you’re above it. Each month, you pay the Chapter 13 trustee, who distributes the money to creditors according to the plan. Priority debts like recent taxes and domestic support are generally paid in full; secured debts are handled as the plan provides; unsecured creditors receive whatever your disposable income allows, which is sometimes a small percentage.

Catching up on your mortgage

One of Chapter 13’s biggest advantages is the ability to cure mortgage arrears — pay missed mortgage payments over the life of the plan while keeping up with current payments. That can stop a foreclosure and save your home.

The co-debtor stay

Chapter 13 includes a co-debtor stay that generally protects people who co-signed consumer debts with you while your plan is active.

Discharge

After you complete all plan payments and the required debtor education course, the court discharges most remaining eligible debts.

Chapter 7 vs. Chapter 13 Side by Side

The key differences between the two chapters.

Debts Bankruptcy Usually Won’t Erase

Some debts survive bankruptcy in either chapter, or can only be eliminated in limited circumstances.

These debts generally survive bankruptcy.

• Child support and alimony
• Most recent income taxes — older income taxes may be dischargeable if they meet specific timing rules
• Most student loans, unless you prove undue hardship in a separate proceeding within your case. The federal government introduced a streamlined process in 2022 that has made discharge more achievable for some federal student loan borrowers, so it’s worth raising with your attorney.
• Debts from fraud or willful and malicious injury
• Criminal fines and restitution
• Debts from driving under the influence that caused death or personal injury
• Debts you fail to list in your bankruptcy filing, in some situations

Secured debts are also different: bankruptcy can eliminate your personal liability, but the lender generally keeps its lien on the property. If you stop paying, it can still take the collateral.

What Bankruptcy Costs

Costs include:

• Court filing fees. A few hundred dollars. Chapter 7 filers with low income may qualify for a fee waiver, and fees can often be paid in installments.
• Credit counseling and debtor education courses. Typically modest, with fee waivers available for low-income filers.
• Attorney’s fees. These vary by location and case complexity. Chapter 7 fees are usually paid upfront; Chapter 13 fees are often partly paid through the plan.

You can file without an attorney, but bankruptcy law is technical and mistakes can cost you property or your discharge. Many bankruptcy attorneys offer free consultations, and legal aid organizations may help eligible low-income filers.

How Bankruptcy Affects Your Credit

Bankruptcy has a significant effect on credit, but for many people whose credit is already damaged by missed payments and collections, the additional drop is smaller than they fear — and recovery can begin quickly because debts are resolved.

• Chapter 7 can stay on your credit report for 10 years from the filing date.
• Chapter 13 generally stays for 7 years from the filing date.
• Discharged accounts should show a zero balance and be marked as included in bankruptcy.

After your discharge, pull your reports at AnnualCreditReport.com and check every account. It’s common to find discharged debts still showing balances or reported as past due. Dispute those errors with each credit bureau. For help, see our guide on removing collections from your credit report.

Rebuilding Credit After Bankruptcy

Many people see their credit scores begin to recover within the first year or two after discharge. Steps that help:

• Open a secured credit card and pay it in full every month
• Consider a credit builder loan to add installment history — see our guide to credit builder loans
• Keep balances low relative to your limits
• Pay every bill on time, since payment history is the largest factor in your score
• Build an emergency fund so a surprise expense doesn’t lead to new debt
• Be cautious with high-cost offers that target recent filers

Buying a home after bankruptcy

Mortgage programs set waiting periods. Typical guidelines are about two years after a Chapter 7 discharge for FHA and VA loans and four years for conventional loans. For Chapter 13, FHA and VA loans may be possible after one year of on-time plan payments with court approval. Confirm current rules with a lender.

How Often Can You File?

There are waiting periods between bankruptcy discharges:

• Chapter 7 after Chapter 7: 8 years between filing dates
• Chapter 13 after Chapter 7: 4 years
• Chapter 13 after Chapter 13: 2 years
• Chapter 7 after Chapter 13: 6 years, with exceptions if the prior plan paid enough of the unsecured debt

You can file sooner in some situations, but you may not receive a discharge.

Alternatives to Consider First

Bankruptcy isn’t always the right answer. Before filing, consider:

• Negotiating with creditors for hardship plans or settlements
• A debt management plan through a nonprofit credit counseling agency
• Loan modification or forbearance for mortgage problems
• Income-driven repayment for federal student loans
• Doing nothing if you’re “judgment proof” — meaning your income and property are fully protected from collection. This is situational and deserves professional advice.

A good bankruptcy attorney will tell you when bankruptcy isn’t in your best interest.

Warning Signs to Watch For

• Hiding assets or income. Bankruptcy fraud is a federal crime.
• Running up debt right before filing. Recent luxury purchases or cash advances may not be dischargeable.
• Paying back family members first. Payments to relatives or friends shortly before filing can be undone by the trustee.
• Transferring property before filing. Transfers for less than fair value can be reversed.
• Using “bankruptcy petition preparers” who give legal advice. Non-attorney preparers can type forms but can’t advise you.

Life During a Chapter 13 Plan

A Chapter 13 plan lasts years, so it helps to know what day-to-day life looks like.

• You live on a budget. Your plan payment is based on your disposable income, so there’s usually little room for extras.
• New debt needs approval. You generally need permission from the trustee or court before taking on significant new debt, such as a car loan.
• Tax refunds may go to the plan. Some districts require you to turn over part or all of your tax refunds.
• Changes are possible. If your income drops or you face a major expense, your plan can sometimes be modified.
• Missed payments have consequences. If you fall behind on plan payments, the case can be dismissed, which ends the automatic stay.

Many people complete their plans successfully, especially when the plan is realistic from the start. A good attorney will build in room for ordinary life.

What Happens to Retirement Accounts and Benefits

Most retirement accounts — including 401(k)s, pensions, and most IRAs — receive strong protection in bankruptcy. Social Security benefits are also generally protected. That’s one reason cashing out a retirement account to pay unsecured debts before filing can be a costly mistake: the money may have been protected in bankruptcy, and the withdrawal can trigger taxes and penalties. Talk to an attorney before raiding retirement savings to pay creditors.

Common Myths About Bankruptcy

• “I’ll lose everything.” Most people who file keep their essential property because of exemptions.
• “I’ll never get credit again.” Many people receive credit offers soon after discharge, and scores often begin improving within a year or two.
• “Everyone will know.” Bankruptcy filings are public records, but most people never look, and employers generally can’t discriminate against you solely because you filed.
• “My spouse has to file too.” Not necessarily. One spouse can file alone, although it can affect the other spouse, especially in community property states such as California.
• “Bankruptcy erases all debt.” Some debts, like child support and most student loans, usually survive.

Frequently Asked Questions

What’s the main difference between Chapter 7 and Chapter 13?

Chapter 7 eliminates eligible debts quickly but requires passing the means test and may involve selling non-exempt property. Chapter 13 repays debts through a three- to five-year plan and lets you keep property and catch up on secured debts.

Will I lose my house in bankruptcy?

Not necessarily. In Chapter 7, you can often keep your home if you’re current on the mortgage and your equity is protected by exemptions. Chapter 13 can let you keep your home while catching up on missed payments.

How long does bankruptcy stay on my credit report?

Chapter 7 can stay for up to 10 years from filing, and Chapter 13 generally for 7 years. Its impact lessens over time, especially as you add positive credit history.

Can bankruptcy stop wage garnishment?

Yes. The automatic stay generally stops wage garnishments for consumer debts as soon as you file. It doesn’t stop garnishment for child support.

Can I keep my car?

Often, yes. If you’re current on your car loan and your equity is protected, you can usually keep the car by continuing to pay. Chapter 13 can also help you catch up on missed car payments.

Do I need a lawyer to file bankruptcy?

You aren’t required to have one, but bankruptcy law is complex and mistakes can be costly. Many attorneys offer free consultations, and legal aid may help if you qualify.

Can student loans be discharged in bankruptcy?

Sometimes. You must show undue hardship in a separate proceeding within your bankruptcy case. A streamlined process introduced for federal student loans in 2022 has made discharge more achievable for some borrowers.

Will filing bankruptcy affect my job?

Private employers and government agencies generally can’t fire you solely because you filed for bankruptcy. Some jobs that involve handling money or require certain licenses may involve additional review, so ask an attorney if your job falls into that category.

How soon after bankruptcy can I get a credit card?

Many people qualify for a secured credit card soon after discharge, and some receive unsecured offers within months. Start with one card, keep the balance low, and pay it in full every month to rebuild steadily.

Can I file bankruptcy without my spouse?

Yes. One spouse can file alone. In community property states such as California, however, community property and certain debts can be affected even if only one spouse files, so talk to an attorney about how it applies to your household.

What happens to my credit cards when I file?

Credit card accounts included in your bankruptcy are typically closed, and the balances are discharged in Chapter 7 or handled through your Chapter 13 plan. After your case, check your credit reports to confirm each account shows a zero balance and is marked as included in bankruptcy.

The Bottom Line

Chapter 7 offers a fast fresh start for people who qualify and can protect their property with exemptions. Chapter 13 offers structure and protection for people with regular income who want to keep their home or car and catch up over time. Both stop collection the moment you file, and both give you a legal, lasting way forward when debts have become impossible to repay on your own.

If you’re unsure where to start, a free consultation with a local bankruptcy attorney and a budget review with a nonprofit credit counselor will give you a clear picture of your options.

If you’re considering bankruptcy, talk to a bankruptcy attorney about which chapter fits your situation. Afterward, follow our step-by-step guide on how to fix your credit.

Rebuilding After Bankruptcy?

Strong Credit Report has helped consumers across California and nationwide since [year] correct post-bankruptcy credit report errors and rebuild. Your first consultation is free. If you haven’t filed yet, we’ll tell you plainly when a bankruptcy attorney is the right first call.

Schedule a free consultation or call 800-603-8045.

Strong Credit Report is a credit repair organization as defined under the Credit Repair Organizations Act. We are not a law firm and do not provide bankruptcy services. We cannot guarantee specific results or the removal of accurate information. This article is general information, not legal advice.