Chapter 7 vs. Chapter 13: Which Bankruptcy Option Is Better for You?
If you’re struggling with debt, you may be wondering whether Chapter 7 or Chapter 13 bankruptcy is the right path toward financial relief. Both chapters of bankruptcy can stop creditor harassment, collection lawsuits, and wage garnishments, but they work in very different ways. Understanding the differences between Chapter 7 and Chapter 13, including eligibility rules, repayment obligations, and timelines, can help you make an informed decision about which option best fits your financial goals. See our comparison below, and contact Rounds & Sutter, LLP, to discuss your needs with an experienced and dedicated Ventura County bankruptcy attorney.
Understanding the Basics
Chapter 7 bankruptcy, often called “straight bankruptcy” or “liquidation bankruptcy,” is designed for individuals or businesses with limited income who cannot realistically repay their debts. It allows you to discharge (eliminate) most unsecured debts, such as credit card balances, personal loans, medical bills, and even in some cases, tax debt. In exchange, a court-appointed trustee may sell certain non-exempt assets to pay creditors, although this can usually be avoided with proper planning and skilled legal assistance.
Chapter 13 bankruptcy, known as “reorganization bankruptcy” or a “wage earner’s plan,” is geared toward individuals with a steady income who can afford to repay some portion of their debts over time. Instead of the threat of liquidating assets, you enter a three- to five-year plan that adjusts your debts and makes payments toward the adjusted amounts. Once the plan is complete, any remaining qualifying debts are discharged.
Both types of bankruptcy trigger an “automatic stay” as soon as the case is filed. This powerful legal protection immediately halts collection activity, wage garnishments, repossessions, and foreclosure proceedings, giving you breathing room while your case moves forward.
Eligibility Requirements for Chapter 7 and Chapter 13
Eligibility is one of the biggest distinctions between Chapter 7 and Chapter 13. To qualify for Chapter 7, you must pass the means test, which is a calculation comparing your income to the median income for a household of your size in California. If your income falls below that threshold, you automatically qualify for Chapter 7. If it’s higher, you may still be eligible depending on your disposable income after allowable expenses. The means test ensures that only debtors who truly cannot afford to repay debts qualify for a Chapter 7 discharge.
Chapter 13, by contrast, is available only to individuals (not corporations, partnerships or other types of business entities) who have regular income and debts within specific limits. As of 2025, unsecured debts must be under $526,700 and secured debts under $1,580,125 (subject to periodic adjustment). Chapter 13 is often used by homeowners who want to stop foreclosure and catch up on mortgage arrears through a structured repayment plan.
How Each Chapter Handles Assets and Debt
In Chapter 7, most unsecured debts, like medical bills, credit cards, and personal loans, are eliminated without repayment. However, secured debts, such as mortgages or car loans, are treated differently. You can usually keep your home or car if you continue making payments and the equity in the property is protected under California’s exemption laws. If the equity exceeds the exemption limit, the trustee may sell the asset to pay creditors.
Chapter 13 allows you to keep all your property while paying off debts under a court-approved plan. You can catch up on missed mortgage or car payments to get out of arrears, pay down tax obligations, and even reduce or eliminate certain unsecured debts. Chapter 13 can also help protect co-signers from collection activity, since creditors are required to go through the bankruptcy court for payment.
Bankruptcy Timelines and Process
A typical Chapter 7 case takes about four to six months from filing to discharge. You must attend a brief meeting with the trustee (known as a “341 meeting of creditors”) but otherwise have limited ongoing court involvement. Once your case is discharged, your eligible debts are permanently eliminated, and you can begin rebuilding your credit.
A Chapter 13 case lasts three to five years, depending on your income and repayment plan. You’ll make monthly payments to a trustee, who distributes funds to creditors according to the plan. Upon successful completion, any remaining qualifying unsecured debts are discharged. Chapter 13 requires more long-term commitment but provides powerful tools for those with significant assets or secured debt.
Advantages and Disadvantages of Chapter 7 and 13
Chapter 7 Advantages:
- Quick debt relief, usually within months
- No repayment plan or ongoing court supervision
- Ability to eliminate most unsecured debts
- Best for people with limited income and few assets
Chapter 7 Disadvantages:
- Some property may be sold to pay creditors
- Not all debts are dischargeable (e.g., student loans, certain taxes, support obligations)
- May not help if you’re behind on secured debts like a mortgage or car loan
Chapter 13 Advantages:
- Lets you keep your home, car, and other assets
- Stops foreclosure and allows repayment of arrears
- Consolidates debt into one manageable monthly payment
- Can discharge some debts that might not be cleared under Chapter 7
Chapter 13 Disadvantages:
- Requires steady income for the repayment plan
- Lengthier process that lasts several years
- Missed payments can result in case dismissal
Which Option Is Right for You?
If your income is low, your debts are primarily unsecured, and you have minimal assets, Chapter 7 may provide the quickest route to a fresh start. However, if you have valuable property you want to protect, are behind on mortgage or car payments, or earn too much to qualify under the means test, Chapter 13 may be the better fit.
The right decision depends on your specific financial situation and long-term goals. A knowledgeable bankruptcy attorney can review your debts, income, and assets to help determine which chapter provides the greatest relief and protection.
Get Experienced Guidance from Rounds & Sutter
At Rounds & Sutter, we’ve helped individuals and families throughout Ventura County find practical, effective solutions through bankruptcy. Whether you’re considering Chapter 7 or Chapter 13, our attorneys can help you understand your rights, prepare a strong case, and move toward financial recovery with confidence.
If overwhelming debt is holding you back, contact Rounds & Sutter today to schedule a consultation. Our Oxnard bankruptcy lawyers can help you identify the right strategy for lasting financial stability.