Chapter 7 vs. Chapter 13 Bankruptcy: Which Path Makes Sense for You?

Look, choosing between Chapter 7 and Chapter 13 bankruptcy isn’t exactly fun dinner conversation. But if you’re drowning in debt and staring at these options, you need to know what you’re getting into. Think of it this way—it’s like choosing between ripping off a band-aid quickly or slowly peeling it off while keeping more of what you own.

Both types of bankruptcy can throw you a lifeline when debt feels impossible to manage. The trick? Figuring out which one actually fits your situation instead of just hoping for the best.

Chapter 7: The “Fresh Start” Approach

Chapter 7 is basically bankruptcy’s express lane. You’re looking at about six months from start to finish, and boom—most of your unsecured debts vanish. Gone. Credit cards, medical bills, personal loans? They become someone else’s problem (well, no one’s problem, really).

Do You Even Qualify?

Here’s the thing—not everyone gets to take the Chapter 7 route. You’ve got to pass something called the “means test,” which is a court ordered test to determine if you make enough money to pay the debts back.

The requirements are pretty straightforward:

• Your income has to be below Kentucky’s median, OR you need to prove you can’t reasonably pay back your debts
• You have to take a credit counseling course first (yeah, it’s required)
• You can’t have gotten a Chapter 7 discharge in the past eight years

The means test is basically the gatekeeper here. If your income’s too high, you might get nudged toward Chapter 13 instead.

What Happens to Your Stuff?

This is where people start panicking. “Will they take my house? My car? My grandmother’s China?”

Deep breath. It’s not as scary as you think.

Kentucky lets you keep:

• Up to $31,575 in home equity
• Up to $5,025 in vehicle equity
• $16,850 worth of personal property and household goods
• About $1,675 in whatever you want (wildcard exemption, maybe more if you don’t own a home)
• $3,175 in work tools
• $7,500 in insurance money
• Your retirement accounts (thank goodness)

Most people filing Chapter 7 keep everything they own because it falls under these protections. The trustee isn’t going to come repo your couch or your TV—unless you’re sitting on some seriously valuable non-exempt assets.

What Debts Actually Disappear?

The good news? Chapter 7 wipes out most of the debt that’s probably keeping you up at night:

• Credit card balances
• Medical bills
• Personal loans
• Some old utility bills
• Business debts from that venture that didn’t work out

The not-so-good news? Some debts stick around like that one friend who never takes the hint:

• Student loans (unless you can prove “undue hardship,” which is about as easy as winning the lottery)
• Recent taxes
• Child support and alimony
• Debts from fraud (obviously)

Chapter 13: The “Keep Your Stuff” Plan

Chapter 13 is completely different. Instead of wiping the slate clean quickly, you’re signing up for a 3-5 year payment plan. Think of it as bankruptcy’s installment plan—you get to keep your assets, but you’re committing to pay back a portion of what you owe.

Who Should Consider Chapter 13?

Chapter 13 works best when you’ve got steady income and valuable stuff you really don’t want to lose. Maybe you’re behind on your mortgage but don’t want to lose your house. Or your income’s too high for Chapter 7, but you’re still drowning.

Key factors:

• You need regular, predictable income
• Your secured debts can’t exceed $2,750,000 (if you’re hitting that limit, you’ve got bigger problems)
• You think you can make some amount of payments

Unlike Chapter 7, there’s no income ceiling. Make too much for Chapter 7? Chapter 13 might be your answer.

How the Payment Plan Works

This isn’t some casual “pay when you can” arrangement. It’s court-supervised and structured:

1. You and your lawyer create a detailed plan showing who gets paid what
2. The court has to approve it
3. You make one monthly payment to a trustee
4. The trustee divides that money among your creditors
5. You stick to this for 3-5 years
6. Complete the plan? Remaining eligible debts get discharged

The payment amount depends on your income, necessary expenses, and what you owe. It’s not just throwing darts at a board—there’s actual math involved.

Asset Protection

Here’s Chapter 13’s superpower: you get to keep everything. Your house, your car, that collection of vintage vinyl—it all stays put. Even better, if you’re behind on mortgage or car payments, the plan can help you catch up without losing the property.

You’re protected under the same Kentucky exemptions as Chapter 7, but since Chapter 13 doesn’t liquidate assets, you’re way less likely to lose anything. It’s more about using your future income to clean up your financial mess.

Chapter 7 vs. Chapter 13: The Real Differences

Let’s cut through the legal jargon and look at what really matters:

Speed: Chapter 7 is fast (less than 6 months). Chapter 13 is a marathon (3-5 years).

Income limits: Chapter 7 has strict income requirements. Chapter 13 doesn’t care how much you make, as long as it’s steady.

Asset risk: Chapter 7 might cost you some property. Chapter 13 lets you keep everything.

Debt elimination: Chapter 7 wipes out qualifying debts immediately. Chapter 13 requires you to pay for years before discharge.

Credit impact: Both hurt your credit initially. Chapter 7 might recover faster because it’s over quickly. Chapter 13 stays on your report longer but shows consistent payment history.

So, Which One’s Right for You?

Choose Chapter 7 if:

• You pass the means test
• You want this nightmare over with quickly
• You don’t have much valuable property to protect
• Most of your debt is unsecured (credit cards, medical bills)

Choose Chapter 13 if:

• You have steady income but make too much for Chapter 7
• You’re determined to keep your house or car
• You’re behind on secured debt payments
• You can handle a multi-year commitment

Working with Farmer & Wright

Here’s the thing about bankruptcy—the laws are complicated, the paperwork is extensive, and one wrong move can derail your case. That’s where having experienced attorneys matters.

At Farmer & Wright we have helped more people file for bankruptcy the last five years than any other firm.  Experience matters.

We are able to help families in every county

What We Actually Do

At Farmer & Wright, we start with a free consultation where we actually listen to your story. No judgment, no pressure—just an honest conversation about your options. We’ll look at your income, debts, and assets to figure out which path makes sense.

Then we handle the heavy lifting:

• All the paperwork (and there’s a lot)
• Communication with creditors and trustees
• Representation at court hearings
• Making sure you don’t accidentally mess up your case

Protecting What Matters

We know Kentucky exemption laws inside and out. That means we can help you protect as much property as possible, whether you’re going the Chapter 7 or Chapter 13 route. We’ll also make sure the timing of your filing is strategic—sometimes waiting a few weeks can make a huge difference in what you get to keep.

The Bottom Line

Bankruptcy isn’t the end of the world. It’s not fun, sure, but it’s a legal tool designed to help people get back on their feet. Whether you need Chapter 7’s quick relief or Chapter 13’s structured approach, the key is making an informed choice with proper guidance.

Both options can stop creditor harassment, eliminate or reduce debt, and give you breathing room to rebuild. The question isn’t whether bankruptcy will solve all your problems—it’s whether it’ll solve enough of them to make your life manageable again.

Ready to stop losing sleep over debt and start figuring out your next move?