Chapter 7 vs Chapter 13 Bankruptcy: Your Real-World Guide to Getting Back on Track

When debt feels like it’s crushing you and keeping you up at night, deciding between Chapter 7 and Chapter 13 bankruptcy might be the most important financial choice you’ll ever make. Get it right, and you could save your home, keep your car, and finally breathe again. Get it wrong? Well, let’s just say bankruptcy doesn’t give you mulligans.

Look, I’ve seen people agonize over this decision for months while their situation gets worse. That’s why we put together this guide—to cut through the legal jargon and give you the straight story about which path actually makes sense for your life.

At Farmer & Wright, PLLC, we’ve walked hundreds of people through this exact crossroads. Our team has over 20 years of combined experience in Kentucky bankruptcy law. We’ve seen the relief on someone’s face when they realize they can keep their house, and we’ve helped folks start completely fresh when that was the better move.

Why This Choice Actually Matters (More Than You Think)

Chapter 7 and Chapter 13 are like two completely different roads to the same destination—financial freedom. But here’s the thing: one might take you through scenic routes while the other’s more like ripping off a band-aid.

Chapter 7 basically says, “Let’s wipe the slate clean and start over,” usually in about four to six months. Chapter 13 is more like, “Let’s make a plan to pay some of this back over the next few years while you keep your stuff.”

Choosing wrong can cost you big time. I’ve seen people lose homes in Chapter 7 when Chapter 13 could’ve saved them, and I’ve watched others struggle through five-year payment plans when a quick Chapter 7 discharge would’ve been perfect.

Here’s what makes this guide different: we’re giving you actual tools to figure this out—interactive assessments, real exemption numbers, and downloadable checklists. No fluff, just the stuff that actually helps you decide.

Chapter 7: The Fresh Start Express

Chapter 7 bankruptcy eliminates most of your unsecured debt if you pass something called the means test. Think of it as financial CPR—quick, decisive action when you’re drowning in debt.

It’s perfect for people buried under credit card bills, medical debt, or personal loans, especially if you’re facing foreclosure or wage garnishment and need the cavalry to arrive fast. The whole process? Usually done in four to six months.

Real example: We had a client who got hit with $75,000 in medical bills after a serious illness. Couldn’t work, couldn’t pay, collectors calling constantly. Through Chapter 7, we wiped out every penny of that medical debt plus her credit cards, while protecting her home equity and retirement savings. The automatic stay stopped those collection calls immediately—she actually slept through the night for the first time in months.

The U.S. Courts’ Chapter 7 basics spell out the official requirements, but here’s the real deal: if you pass the means test and haven’t filed Chapter 7 in the past eight years, you’re probably good to go.

Chapter 13: The Keeper’s Choice

Chapter 13 lets you hang onto your stuff by committing to a 3-5 year payment plan. It’s called the “wage earner’s plan” because you need steady income to make it work.

This is your best bet if you’ve fallen behind on your mortgage or car payments but want to keep them, if you make too much for Chapter 7, or if you’ve got debts that don’t go away easily (like certain taxes or student loans). The payment plan is based on what you actually have left after covering necessities.

The superpower of Chapter 13? Asset protection. You keep your house, your car, everything—as long as you stick to the payment schedule. Plus, it’s got some neat tricks like lien stripping (bye-bye, second mortgage on an underwater house) and cramdowns (cutting your car loan down to what the car’s actually worth).

Check out the official Chapter 13 basics for all the technical details.

Bankruptcy Speak, Translated

Let’s decode the bankruptcy dictionary real quick:

• Discharge: The magic court order that makes your obligation to pay certain debts disappear
• Means Test: The income calculation that decides if you qualify for Chapter 7
• Secured Debt: Loans with collateral (your house, your car)
• Unsecured Debt: Debt without anything backing it up (credit cards, medical bills)
• Exemptions: Legal protections that keep creditors’ hands off certain property
• Automatic Stay: The force field that stops collection actions the second you file
• Trustee: The court-appointed person who oversees your case

Sounds like legal mumbo jumbo? Don’t worry. At Farmer & Wright, we make sure every client understands exactly what’s happening before we file anything.

Who Qualifies for What (And Why It’s Trickier Than You Think)

The eligibility rules aren’t suggestions—they’re hard lines that determine your options. Your income gets compared to your state’s median for Chapter 7, while Chapter 13 needs you to have regular income and stay within federal debt limits.

For 2025, Chapter 13 caps unsecured debt at $465,275 and secured debt at $1,395,875. Chapter 7 requires passing the means test unless your debts are mostly business-related. Both have waiting periods if you’ve filed bankruptcy before.

During our free consultations at Farmer & Wright, we walk through these calculations with every client. No surprises, no “gotchas”—just clear answers about what you can and can’t do.

The U.S. Bankruptcy Court’s comparison has all the federal requirements laid out officially.

Chapter 7: Can You Make the Cut?

Here’s what you need for Chapter 7:

• Pass the means test: Your income’s below the state median OR you genuinely can’t afford to pay creditors
• Clean recent history: No Chapter 7 discharge in the past 8 years
• Credit counseling done: Required course within 180 days before filing
• Complete honesty: Every asset, every debt, every penny gets reported
• No recent favoritism: Can’t have made big payments to specific creditors in the 90 days before filing

We help clients figure out if they qualify during our free consultation. Sometimes there are workarounds for potential issues—that’s where experience matters.

Chapter 13: The Income Requirements

Chapter 13 has different hoops to jump through:

• Steady paycheck: Regular income sufficient for monthly plan payments
• Within debt limits: Total debt has to fall within federal boundaries
• Money left over: Enough income after necessary expenses to fund a real repayment plan
• No recent dismissals: Can’t have had a bankruptcy case tossed for certain reasons in the past 180 days
• Tax compliance: Current on tax filings for the four years before filing

Chapter 13 often works best when you’ve fallen behind on house or car payments but have the income to catch up over time, or when you’ve got non-dischargeable debts that benefit from the structured approach.

Busting Common Myths

High income doesn’t automatically slam the door on bankruptcy. Even if you make more than the state median, you might still qualify for Chapter 7 if your legitimate expenses bring your disposable income below the threshold.

From our experience, clients often have misconceptions that keep them from getting help when they really need it:

• Myth: “I make too much for any bankruptcy” – Reality: Chapter 13 has no income ceiling, just debt limits
• Myth: “I’ll lose everything” – Reality: Most Chapter 7 cases are no-asset cases where people keep all their stuff
• Myth: “My credit’s ruined forever” – Reality: Many clients see real credit improvement within 2-3 years
• Myth: “Can’t file if I own a home” – Reality: Homestead exemptions often protect home equity in both chapters

What Happens to Your Stuff?

Chapter 7 might require selling non-exempt assets, while Chapter 13 usually lets you keep everything if you stick to the payment plan. Understanding exemptions is absolutely crucial—they’re what determine whether you get to keep your property.

Federal exemptions for 2025 include homestead protection up to $27,900, vehicle equity up to $4,450, and unlimited protection for most retirement accounts. There’s also a wildcard exemption of $1,475 you can use on anything, plus potentially another $13,950 if you don’t need the full homestead exemption.

Here’s how different assets typically shake out:

Usually Protected:

• Your primary home (up to exemption limits)
• One car (up to exemption limits)
• Household goods and clothes
• Retirement accounts (401k, IRA, pensions)
• Work tools up to certain values

Potentially at Risk in Chapter 7:

• Investment properties
• Second cars
• Luxury items
• Cash beyond exemption limits
• Non-retirement investment accounts

Exemptions: Your Legal Shield

Exemptions are laws that protect certain property from being sold to pay creditors. Every state has its own system, and sometimes you can choose between state and federal exemptions—whichever protects you better.

Federal exemptions for 2025:

• Homestead: $27,900 in equity in your primary residence
• Motor vehicle: $4,450 in equity in one vehicle
• Household goods: $700 per item, up to $14,875 total
• Wildcard: $1,475 that can protect any property
• Retirement accounts: Unlimited protection for qualified plans

Kentucky residents can choose federal exemptions, which often beat state exemptions for many types of assets. Our attorneys analyze both systems to find the best protection strategy for each client.

What’s Actually at Risk in Chapter 7?

In Chapter 7, the trustee can sell non-exempt property to pay creditors. But here’s the reality: most cases are “no-asset” proceedings where people keep everything thanks to exemption protection.

Property that might get liquidated:

• Luxury stuff: Expensive jewelry, art, collectibles beyond household limits
• Investment accounts: Non-retirement brokerage accounts, stocks, bonds
• Real estate: Investment properties or vacation homes
• Business assets: Equipment, inventory, business interests
• Excess cash: Bank balances over exemption limits

We recently helped a client protect a vintage car collection worth $30,000 using creative exemption planning and strategic timing. Sometimes thinking outside the box saves assets people thought were goners.

How Chapter 13 Protects Everything

Chapter 13 lets you keep non-exempt property by paying its value to creditors through your plan. It’s called the “best interests test”—creditors have to get at least what they’d receive in Chapter 7, just over time instead of immediately.

Key protection benefits:

• Home preservation: Catch up on missed mortgage payments over 3-5 years
• Vehicle retention: Keep cars by paying their value through the plan
• Lien stripping: Remove second mortgages when the home’s underwater
• Cramdowns: Reduce car loan balances to current vehicle value for older vehicles

For homeowners facing foreclosure, Chapter 13 offers tools that Chapter 7 simply can’t match. The automatic stay stops foreclosure proceedings immediately, and the repayment plan lets you cure mortgage defaults over time while keeping up with regular payments.

Which Debts Actually Go Away?

Most unsecured debts disappear in Chapter 7, while Chapter 13 reorganizes everything and pays some back. Knowing which debts can be eliminated helps you figure out the best strategy.

Debt Type	Chapter 7	Chapter 13
Credit cards	Gone	Partially paid
Medical bills	Gone	Partially paid
Personal loans	Gone	Partially paid
Mortgage	Stays, but foreclosure stops temporarily	Arrears cured through plan
Car loans	Stays, but repossession stops temporarily	Current through plan
Student loans	Usually stays	Paid through plan, usually no discharge
Recent taxes	Usually stays	Paid through plan
Child support	Never goes away	Current through plan

At Farmer & Wright, we make sure clients understand exactly how each debt will be handled. Nobody likes surprises, especially when it comes to bankruptcy.

What Chapter 7 Actually Eliminates

Chapter 7 gives you a clean slate for most common unsecured debts:

• Credit card balances – All general credit card debt vanishes
• Medical bills – Hospital, doctor, and other medical debt
• Personal loans – Bank loans, payday loans, signature loans
• Utility bills – Past due amounts for electricity, gas, water
• Deficiency balances – What’s left after foreclosure or repossession

Exceptions include recent large purchases (luxury goods over $875 within 90 days), recent cash advances (over $1,000 within 70 days), and debts obtained through fraud or false pretenses.

The official Chapter 7 basics note that discharge typically happens 60-90 days after your meeting with creditors.

How Chapter 13 Handles Everything

Chapter 13 sorts all debts into categories that determine payment priority:

• Priority debts: Taxes, child support, administrative costs—paid in full
• Secured debts: Mortgages and car loans—maintained through regular payments
• Unsecured debts: Credit cards and medical bills—get percentage payment based on your plan

Chapter 13’s real power is stopping foreclosures and repossessions while giving you time to catch up on secured debt payments. Mortgage arrears can be spread over 60 months, making previously impossible payments manageable.

The Tricky Debts

Student loans, tax liens, and recent large purchases need special handling. While these debts generally don’t disappear, each chapter deals with them differently.

Student loans stick around in both chapters, but Chapter 13 lets you make reduced payments during the plan period. Tax debts might be dischargeable in Chapter 7 if they meet specific age and filing requirements, while Chapter 13 provides structured payment plans for all tax obligations.

Our team has extensive experience with complex debt situations—multiple tax years, student loan disputes, preference payment issues. We develop comprehensive strategies that address both dischargeable and non-dischargeable debts.

Timeline, Credit Impact, and Life After

Chapter 7 takes 4-6 months and stays on your credit for up to 10 years; Chapter 13 takes 3-5 years and stays for 7 years—but both offer real paths to financial recovery. Understanding the timeline and credit implications helps you plan your comeback.

Chapter 7 moves fast: filing to discharge typically takes 120-180 days, with most of that being waiting periods rather than active work. Chapter 13 requires ongoing commitment but provides immediate protection while you reorganize.

Credit impact varies based on where you started. Clients who were already behind on payments often see credit score improvements within 12-18 months as negative payment history gets replaced by the bankruptcy notation, which actually has less ongoing impact than continuing missed payments.

Chapter 7: The Sprint

The Chapter 7 timeline is pretty predictable:

1. Prep work (2-4 weeks): Gather documents, complete credit counseling, prepare paperwork
2. Filing day: Automatic stay kicks in immediately
3. 341 Meeting (30-45 days later): Brief meeting with trustee to review your case
4. Asset administration (if needed): Trustee liquidates non-exempt property
5. Discharge (60-90 days after 341): Court order eliminating debts
6. Case closure: Final paperwork gets wrapped up

At Farmer & Wright, we handle all the paperwork, attend court with you, and keep you informed at every step. Our goal is minimizing stress while maximizing benefits.

Chapter 13: The Marathon

Chapter 13 involves more complex ongoing obligations:

1. Plan proposal (filed with petition): Detailed repayment schedule based on income and debts
2. Confirmation hearing (30-45 days later): Court approves the repayment plan
3. Plan payments (36-60 months): Monthly payments to trustee who distributes to creditors
4. Plan modifications (as needed): Adjustments for changed circumstances
5. Completion and discharge: Final discharge after all plan payments made

Success in Chapter 13 requires consistent plan payments and communication about any financial changes. Farmer & Wright provides ongoing support throughout the repayment period, helping clients navigate income changes, emergency expenses, and plan modifications.

Credit Recovery: It’s Not Forever

Bankruptcy appears on credit reports for 7-10 years, but its impact fades significantly over time. Many clients see credit scores improve within 2-3 years through responsible post-bankruptcy financial management.

Credit rebuilding strategies:

• Secured credit cards: Build positive payment history with low-limit cards
• Credit monitoring: Track improvements and dispute inaccuracies
• Budget maintenance: Demonstrate financial responsibility
• Debt avoidance: Focus on saving rather than borrowing initially

According to Experian, consumers can often qualify for conventional mortgages 2-4 years after bankruptcy discharge with proper credit rebuilding efforts.

Your Next Steps (And Some Real Success Stories)

Every state has different exemption amounts, so cookie-cutter advice doesn’t work. Federal exemptions often provide better protection than state exemptions for many asset types, but the choice depends on your specific situation.

The tools we provide include eligibility assessments, exemption calculators, and decision flowcharts that give you personalized guidance before making any commitments. Combined with our free consultation, you get the customized approach that generic online information just can’t match.

Tools That Actually Help

Our assessment tools help you evaluate your options:

• Eligibility quiz: Determines whether you qualify for Chapter 7 or Chapter 13
• Exemption calculator: Shows what property you can protect under federal vs. state exemptions
• Means test estimator: Calculates your income qualification for Chapter 7
• Debt classification worksheet: Categorizes your debts for optimal planning

These tools provide immediate insights during your free consultation. Unlike generic online calculators, our assessments consider Kentucky-specific laws and current federal guidelines for accurate, actionable information.

Real People, Real Results

Saving the Family Home
A Kentucky family facing foreclosure after job loss chose Chapter 13 to keep their home. Through a 5-year repayment plan, they cured $18,000 in mortgage arrears while eliminating $45,000 in credit card debt. Today? They own their home free and clear and have rebuilt their credit to 720+.

Medical Debt Relief
After cancer treatment left them with $120,000 in medical bills, a client filed Chapter 7 and eliminated all medical debt while protecting their retirement savings and vehicle. The discharge let them focus on recovery without collection stress.

Business Owner Fresh Start
A small business owner used Chapter 7 to eliminate personal guarantees on business debt while protecting their home equity through federal exemptions. They started fresh without the burden of failed business obligations.

These aren’t fairy tales—they’re real outcomes from proper chapter selection and exemption planning. Our Kentucky bar-licensed attorneys bring decades of experience to every case.

Your Free Consultation: What to Expect

Taking action now could be the turning point for your financial future. Our free, no-obligation consultation provides personalized analysis without any pressure to file.

During your consultation, we’ll:

• Analyze your income, debts, and assets
• Calculate your eligibility for both chapters
• Estimate your exemption protection
• Explain the timeline and requirements
• Answer all your questions about bankruptcy

The consultation happens at our offices or via secure video conference—whatever works better for you. Financial stress is overwhelming, and our goal is providing clarity and hope during a difficult time.

Quick Comparison: Chapter 7 vs Chapter 13

Factor	Chapter 7	Chapter 13
Eligibility	Pass means test or below median income	Regular income, debt within limits
How Long	4-6 months	3-5 years
Your Stuff	Non-exempt property liquidated	Keep all property with plan payments
Which Debts Gone	Most unsecured debts eliminated	Unsecured debts partially paid
Credit Impact	10 years on credit report	7 years on credit report
Best Part	✓ Quick relief ✓ Fresh start	✓ Asset protection ✓ Foreclosure prevention
Perfect For	High unsecured debt, lower income	Regular income, homeowners, tax debt

The Questions Everyone Asks

What’s the real difference between Chapter 7 and Chapter 13?
Chapter 7 quickly eliminates most unsecured debts through liquidation, while Chapter 13 lets you keep property by repaying debts over 3-5 years under a plan.

Which one’s better—Chapter 7 or Chapter 13?
Depends on your assets and income: Chapter 7 fits those wanting a fast clean slate, while Chapter 13 is ideal for protecting a home or managing higher earnings.

What do I need to qualify for Chapter 7?
You must pass a means test based on your income and not have received a recent bankruptcy discharge.

How does the Chapter 13 payment plan actually work?
You pay set monthly amounts (based on income and debt) to a trustee for 3-5 years, after which remaining eligible debts are wiped out.

What are the downsides of each?
Chapter 7 poses greater risk to non-exempt assets; Chapter 13 involves a longer commitment and repayment plan before debt discharge.

Bottom Line: Your Path Forward

“Our job at Farmer & Wright is to make sure you never feel lost. We break down complex law, match you to the right chapter, and guide you every step of the way.” — Attorney at Farmer & Wright, PLLC

Here’s what matters most:

• Both Chapter 7 and Chapter 13 offer powerful but different paths to financial relief
• State laws and eligibility rules mean personalized guidance is essential
• Farmer & Wright’s tools and expert consultations help you choose the right strategy and maximize protection
• The path to a clean financial slate starts with an informed, confident choice

Ready to see which bankruptcy chapter offers your best shot at a fresh start? Contact Farmer & Wright’s bankruptcy attorneys now for your free, personalized consultation. Our experienced team will analyze your unique situation, explain your options clearly, and help you take the first step toward the financial relief you deserve.