Chapter 7 vs. Chapter 13 Bankruptcy: Which Protects What

Chapter 7 and Chapter 13 solve different problems. Chapter 7 — liquidation: the fast reset — qualifying filers discharge most unsecured debts (credit cards, medical bills, personal loans) in roughly three to six months; a trustee can sell non-exempt assets to pay creditors, though state and federal exemptions protect core property and most consumer Chapter 7s are "no-asset" cases where filers keep everything exempt. Eligibility runs through the means test — income above the state median triggers scrutiny that can push filers toward Chapter 13. Chapter 13 — reorganization: a three-to-five-year repayment plan built on your disposable income, at the end of which remaining qualifying unsecured debt is discharged. Its superpowers are what Chapter 7 lacks: stopping foreclosure and curing mortgage arrears over the plan, protecting non-exempt assets you'd lose in 7, managing certain tax debts, and (in the right cases) restructuring vehicle loans. [LEGAL REVIEW: framing; figures avoided by design.]

How filers actually choose. The decision tree is short: qualify for 7 and own nothing non-exempt you'd lose → Chapter 7's speed usually wins. Behind on a house you're keeping, over the means test, or holding non-exempt assets worth protecting → Chapter 13's plan is the tool. Business owners add a layer (7 for closed businesses, 13 or 11 variants for continuing ones), and what bankruptcy doesn't discharge frames everything: most student loans (absent hardship litigation), domestic support obligations, recent taxes, and fraud-based debts survive both chapters.

The immediate effect both share: the automatic stay. Filing stops collections, lawsuits, garnishments, and (temporarily at minimum) foreclosures — the breathing room that is often the real product, purchased in exchange for the process's disclosure obligations and credit consequences (a bankruptcy notation for years, though filers with defaulted debt often rebuild faster than they fear).