Most people arrive convinced they want Chapter 7, because it is faster and cheaper and it does not involve five years of payments. Fair enough. But the choice is usually made for you rather than by you.
Three things decide it: what you earn, what you own, and whether you are behind on something you want to keep.
| Chapter 7 | Chapter 13 | |
|---|---|---|
| How long | About 4 months | 3 or 5 years |
| Attorney fee | From $1,850, paid before filing | $7,000 no-look, mostly paid through the plan |
| Court filing fee | $338 | $313 |
| Income limit | Yes, the means test | No |
| Stops a foreclosure | Temporarily | Yes, and lets you catch up |
| Protects a co-signer | No | Yes |
| Non-exempt assets | Trustee can sell them | You keep them and pay their value into the plan |
| On your credit report | 10 years | 7 years |
You are probably a Chapter 7 if
- Your income is below the California median for your household size
- Your debt is mostly credit cards, medical bills and personal loans
- You are current on your mortgage and car, or you are willing to let them go
- Your equity fits inside the exemptions
You are probably a Chapter 13 if
- You are behind on a mortgage and want to keep the house
- You earn too much to pass the means test
- You have equity or an asset a trustee would sell
- You have priority tax debt that will not discharge
- Someone co-signed for you and you want to shield them
- You had a Chapter 7 discharge less than eight years ago
The uncomfortable third option
Sometimes the answer is neither. If you are living on Social Security with no assets and no wages to garnish, creditors may already have nothing to take from you. Filing would cost you money and change very little. We say so, and we say it before you have paid us anything.
Where it gets genuinely close
The hard cases are people who qualify for both. Someone who passes the means test but has $90,000 of equity in a duplex. Someone current on the mortgage but with $40,000 of recent tax debt. In those cases the right answer depends on details that do not fit on a web page, which is not a dodge, it is just true.
“I have moved plenty of clients from a Chapter 13 they were sold elsewhere into a Chapter 7 they qualified for the whole time. The five-year plan is not the safer choice just because it sounds more responsible.”
Naomi Reyes-AshfordQuestions we get asked
Can I start in Chapter 13 and switch to Chapter 7?
Yes. Conversion is common and there is a page on it. It usually happens when income drops mid-plan.
Which is cheaper?
Chapter 7 costs less overall. Chapter 13 is often easier to afford at the start, because the fee is spread across the plan.
Does one look better to future lenders?
Marginally. Some mortgage programs have shorter waiting periods after a Chapter 13. That alone is rarely a good reason to choose one.
Start here
Write down three numbers: your gross household income for the last six months, what you think your home and car are worth, and how far behind you are on anything secured. Those three answer the question most of the time.