Chapter 7 or Chapter 13: Which Bankruptcy is Right for You

This article is part of a comprehensive guide to bankruptcy in Oregon. Go here to read the guide and see related articles.

If you are overwhelmed by debt, bankruptcy might help. There are two main kinds of personal bankruptcy: Chapter 7 and Chapter 13. Each one works differently. What is best for your depends on your income, the kind of debt you have, and your financial goals. 

This guide explains the key differences between Chapter 7 and Chapter 13 bankruptcy to help you decide. 

What is the difference: Chapter 7 vs Chapter 13 bankruptcy

Chapter 7 bankruptcy: Faster, simpler, for people with lower incomes

• Wipes out most debts, including credit cards, medical bills, and personal loans
• A faster process—usually about 90 days from start to finish 
• Only available if your income is low enough to qualify—read more about Chapter 7 income requirements here

Chapter 7 may require you to give up some belongings:

• You can keep basic belongings, called exempt property, like clothing, a car, and household items.
• Other possessions and property, called non-exempt property, may be sold to repay debts. 

Chapter 7 stays on your credit report for 10 years.

Chapter 13 bankruptcy: A payment plan to keep your property and catch up on debt

• No income limit, but your total debt must be below a certain amount—read more about Chapter 13 requirements here
• A longer process: follow a 3-year or 5-year payment plan based on your income
• Keep your property if you make all required payments
• Helps you catch up on mortgage or car payments so you don't lose them

A Chapter 13 bankruptcy stays on your credit report for 7 years, but making on-time payments during the plan can help rebuild your credit. 

Is Chapter 7 or Chapter 13 the right choice for me?

Consider Chapter 7 if:

• Your income is low enough to qualify under the means test, a bankruptcy court process that considers your income and expenses.  
• You don't have enough money left after expenses to repay debts. 
• Most of your debt comes from credit cards, medical bills, or personal loans, not business debts. 
• You don't own valuable items or property that could be taken to pay debts. 

Some people don't have to take the means test, including those whose debts mostly come from running a business and some veterans. You can find more information about the means test here. 

Consider Chapter 13 if:  

• You have regular income that lets you make monthly payments. 
• Your total debt is below federal limits for both secured debts (debts tied to specific property, like mortgages or car loans) and unsecured debts (like credit cards and medical bills). 
• You want to keep your home or car and need time to catch up on missed payments.

Chapter 13 requires payments for 3 to 5 years. If you miss payments, your case could be dismissed, and you'd lose bankruptcy protection. But you might be able to get back on track by working with your trustee or a judge.

Continue learning about bankruptcy:

• Impacts on possessions and property: Learn how bankruptcy affects your property here.
• How to file: Explore how the bankruptcy filing process works here.  

Other Frequently Asked Questions