Chapter 7 Bankruptcy: The Fresh Start
Chapter 7 bankruptcy offers the quickest path to eliminating most unsecured debts. Often called liquidation bankruptcy, Chapter 7 discharges qualifying debts within three to four months of filing. For many people struggling with credit card debt, medical bills, and personal loans, Chapter 7 provides the clean slate they need to rebuild their financial lives.
The process begins when you file your bankruptcy petition with the court.
The automatic stay takes effect immediately, stopping collection calls, lawsuits, and wage garnishments. A bankruptcy trustee is appointed to review your case and determine whether you have any non-exempt assets that could be sold to pay creditors.
Most Chapter 7 filers keep all of their property through exemptions. Federal and Florida state exemptions protect essential assets, including your home equity up to certain amounts, vehicles, retirement accounts, household goods, and personal belongings. The trustee only liquidates assets that exceed exemption limits and have sufficient value to benefit creditors after selling costs.
Within 30 to 45 days after filing, you attend a Meeting of Creditors where the trustee asks questions about your finances under oath. This meeting typically lasts 10 to 15 minutes. Creditors rarely attend. About 60 days after the Meeting of Creditors, assuming no complications arise, the court issues your discharge order eliminating qualifying debts.
Chapter 7 works well when you have limited income, few assets beyond exempt property, and primarily unsecured debts you want eliminated quickly. If you can barely afford basic living expenses and have no realistic ability to repay your debts, Chapter 7 typically provides the most effective relief.
Chapter 13 Bankruptcy: The Repayment Plan
Chapter 13 bankruptcy creates a structured repayment plan that allows you to keep your property while addressing your debts over three to five years. Rather than liquidating assets, you make monthly payments to a bankruptcy trustee who distributes the funds to creditors according to a court-approved plan.
Your repayment plan is based on your disposable income after deducting reasonable living expenses. You must pay secured debts like mortgages and car loans in full if you want to keep the property, but unsecured creditors typically receive only a portion of what you owe based on what remains of your disposable income. Many Chapter 13 filers pay pennies on the dollar to unsecured creditors.
Chapter 13 particularly benefits people who are behind on mortgage payments and facing foreclosure. The repayment plan allows you to catch up on missed mortgage payments over the life of the plan while making current payments, stopping the foreclosure process, and saving your home. This represents one of Chapter 13’s most valuable features.
The process takes longer than Chapter 7. After filing, you propose a repayment plan to the court. Creditors can object to your plan, and the trustee must approve it. You must attend a Meeting of Creditors similar to Chapter 7. Once your plan is confirmed by the court, you make monthly payments for three to five years, depending on your income level.
Successfully completing your payment plan results in the discharge of remaining unsecured debts. If you cannot complete the plan due to unforeseen circumstances, you may be able to modify it, convert to Chapter 7, or receive a hardship discharge under limited circumstances.
Chapter 13 works well when you have regular income, want to save your home from foreclosure, have assets that exceed exemption limits in Chapter 7, or have debts that Chapter 7 cannot discharge, but Chapter 13 can address through a repayment plan.
Income Requirements and the Means Test
Your income determines which chapters you can file and, if you file Chapter 13, how long your repayment plan must last.
The means test determines Chapter 7 eligibility for filers with income above the state median. This calculation compares your average monthly income over the past six months to Florida’s median income for a household of your size. If your income falls below the median, you automatically qualify for Chapter 7.
If your income exceeds the median, you must pass the second part of the means test. This calculation subtracts allowed expenses from your income to determine your disposable income. Allowed expenses include housing, transportation, food, healthcare, and other necessities based on IRS standards. If your disposable income is too high, you may be required to file Chapter 13 instead of Chapter 7.
However, the means test uses a backward-looking calculation based on the previous six months of income. If your income recently dropped due to job loss or other circumstances, your current income may be much lower than what the means test calculates. Courts consider your actual current income when determining whether you can afford a Chapter 13 plan, so recent income changes significantly impact which chapter works best for you.
Chapter 13 requires a regular income sufficient to make plan payments while covering basic living expenses. If you cannot propose a feasible plan that pays the required amounts to secured and priority creditors, Chapter 13 is not viable regardless of your desire to file it.
Property and Asset Considerations
The treatment of your property differs dramatically between Chapter 7 and Chapter 13.
Chapter 7 exemptions determine what property you can keep. Florida’s homestead exemption protects unlimited equity in your primary residence on up to half an acre in a municipality or 160 acres outside municipal limits. This generous exemption means most Florida homeowners keep their homes in Chapter 7 regardless of equity.
Other Florida exemptions protect up to $1,000 in personal property if you do not claim the homestead exemption, up to $1,000 in vehicle equity, retirement accounts, life insurance, and various other property categories. Federal exemptions offer different amounts and categories, and you must choose between the Florida or federal exemption system.
If you own property worth significantly more than the exemption amounts, the Chapter 7 trustee will sell that property and distribute the proceeds to creditors. This scenario is uncommon but does occur with valuable collections, investment properties, or significant bank account balances.
Chapter 13 allows you to keep all of your property regardless of value or exemptions. However, your repayment plan must pay unsecured creditors at least as much as they would have received in a Chapter 7 liquidation. If you have $20,000 in non-exempt assets, your Chapter 13 plan must pay unsecured creditors at least $20,000 over the life of the plan. This makes Chapter 13 more expensive for people with valuable non-exempt property, but it allows you to keep assets you would lose in Chapter 7.
Debt Type Matters
Certain debts receive special treatment depending on which chapter you file.
Both chapters eliminate most unsecured debts like credit cards, medical bills, personal loans, and past due utility bills. Neither chapter eliminates child support, alimony, most tax debts, student loans, except in rare cases, debts from fraud or intentional injury, or criminal fines.
Secured debts work differently in each chapter. In Chapter 7, you must stay current on secured debts like mortgages and car loans if you want to keep the property. If you are behind on payments, you typically must catch up quickly or surrender the property. Chapter 7 offers a limited ability to cure arrearages.
Chapter 13 excels at handling secured debt arrearages. Your plan can spread missed mortgage payments over three to five years while you resume making current payments. This prevents foreclosure and allows you to save your home. Car loans can be restructured in some cases, potentially reducing the interest rate or extending the term.
Priority debts like recent taxes and domestic support obligations must be paid in full through a Chapter 13 plan. Chapter 7 does not discharge these debts either, but Chapter 13 gives you time to pay them through the plan rather than dealing with aggressive collection after discharge.
Some debts that survive Chapter 7 can be discharged in Chapter 13 if you complete your payment plan. These include certain tax debts, debts from property settlements in divorce, and debts for willful and malicious injury to property. If you have substantial non-dischargeable debts in Chapter 7, Chapter 13 may offer better long-term relief.
Credit Impact and Recovery
Both chapters affect your credit, but the impact differs in timing and duration.
Chapter 7 appears on your credit report for 10 years from the filing date. Chapter 13 appears for seven years from the filing date. However, the practical impact on your ability to obtain credit is often similar between the two chapters.
Chapter 7 eliminates debts quickly, allowing you to start rebuilding credit immediately after discharge. Many Chapter 7 filers receive credit card offers within months and can qualify for auto loans within a year. The bankruptcy notation remains on your credit report, but your debt-to-income ratio improves dramatically.
Chapter 13 keeps you in bankruptcy for three to five years, during which your credit report shows an active bankruptcy. However, you demonstrate your ability to make consistent payments throughout the plan period. Some lenders view completed Chapter 13 cases favorably because they show financial discipline and commitment to repaying debts.
Mortgage lenders typically require two to four years after bankruptcy discharge before approving conventional mortgages. FHA loans may be available sooner, sometimes within one to two years after Chapter 7 discharge or during a Chapter 13 plan if you have made at least 12 months of on-time plan payments and obtain court permission.
The credit score impact depends heavily on your credit profile before bankruptcy. If you already have multiple late payments, high credit utilization, and accounts in collections, bankruptcy may actually improve your score by eliminating negative accounts. If your credit was previously good, expect a significant initial drop followed by gradual recovery.
Cost Differences
Chapter 7 typically costs less than Chapter 13 in both filing fees and attorney fees.
Chapter 7 filing fees are $338 as of 2025. Attorney fees typically range from $1,500 to $3,500, depending on case complexity. Most Chapter 7 attorneys require payment in full before filing, though some offer payment plans if you can pay the total amount within a few months.
Chapter 13 filing fees are $313 as of 2025. Attorney fees typically range from $3,500 to $6,000, but most of the attorney fee is paid through the Chapter 13 plan rather than upfront. You typically pay a smaller amount upfront to file the case, and then your attorney receives the remainder from your plan payments over time.
Chapter 13 also involves ongoing trustee fees. The trustee receives a percentage of your plan payments, typically around 5% to 10%, which comes out of the payments you make. Over a five-year plan with $500 monthly payments, trustee fees could total $1,500 to $3,000.
Total Chapter 13 costs over the life of the plan can significantly exceed Chapter 7 costs when you factor in attorney fees, trustee fees, and the amounts paid to creditors. However, Chapter 13 allows you to keep property you would lose in Chapter 7 and save your home from foreclosure, making the additional cost worthwhile for many filers.
Second Mortgages and Lien Stripping
Chapter 13 offers a unique advantage for homeowners with second mortgages or home equity lines of credit: the ability to eliminate these junior liens through lien stripping.
If your home’s current value is less than what you owe on your first mortgage, any second mortgage or home equity line is completely unsecured. Chapter 13 allows you to strip off these junior liens, treating them as unsecured debt in your repayment plan. After completing your plan, the second mortgage is discharged, and the lien is removed from your property.
This benefit can save tens of thousands of dollars for homeowners who are underwater on their mortgages. Chapter 7 does not offer lien stripping, so second mortgages remain attached to the property even after discharge.
Business Debts and Self-Employment
Self-employed individuals and business owners face unique considerations when choosing between chapters.
Chapter 7 works well for business debts if you have closed or will close your business and want to eliminate business debts for which you are personally liable. Sole proprietorships are not separate legal entities, so all business debts are personal debts that can be discharged in Chapter 7.
Chapter 13 allows you to continue operating your business while repaying debts. If you want to keep your business running, Chapter 13 provides the time and structure to reorganize your finances while maintaining your income source. However, your business income must be sufficient to fund a feasible repayment plan.
Business owners with significant business assets face asset protection challenges in Chapter 7. Business equipment, inventory, and accounts receivable may exceed exemption limits. Chapter 13 allows you to keep these assets while paying unsecured creditors an amount equal to what they would have received from liquidation.
Making Your Decision
Choosing between Chapter 7 and Chapter 13 requires an honest evaluation of your financial situation and goals.
Chapter 7 makes sense when you want quick debt elimination, have a limited income that barely covers basic expenses, own few assets beyond exempt property, are current on secured debts, or are willing to surrender collateral, and have primarily unsecured debts you cannot repay.
Chapter 13 makes sense when you have regular income that can fund a repayment plan, are behind on your mortgage and want to save your home, own non-exempt assets you want to keep, have debts that Chapter 7 cannot discharge but Chapter 13 addresses better, or your income exceeds Chapter 7 limits under the means test.
Some situations strongly favor one chapter. If you face imminent foreclosure and want to keep your home, Chapter 13 is likely your best option. If you have no assets, minimal income, and overwhelming medical debt, Chapter 7 provides faster relief.
Other situations offer genuine choice. If you qualify for both chapters, you must weigh the quick fresh start of Chapter 7 against the property protection and debt restructuring benefits of Chapter 13. An experienced bankruptcy attorney can analyze your specific circumstances and recommend the option that best serves your long-term interests.
Taking the Next Step
Understanding the differences between Chapter 7 and Chapter 13 empowers you to make informed decisions about your financial future. Neither option is inherently better than the other. The right choice depends entirely on your unique situation, including your income, assets, debts, and what you hope to accomplish through bankruptcy.
Meeting with a bankruptcy attorney provides personalized guidance based on your specific circumstances. An attorney can calculate your means test results, evaluate your property and exemptions, assess your ability to fund a Chapter 13 plan, and explain the likely outcomes under each chapter. This consultation helps you move forward with confidence, knowing you have chosen the path that best addresses your financial challenges.
Frequently Asked Questions
Can I choose between Chapter 7 and Chapter 13, or does the court decide?
You can choose between chapters if you qualify for both. The court does not assign you to a specific chapter. However, if your income is too high under the means test, you may not qualify for Chapter 7 and must file Chapter 13 instead. Additionally, if you cannot propose a feasible Chapter 13 plan that meets legal requirements, Chapter 7 may be your only viable option. An attorney can determine which chapters you qualify for based on your specific financial situation.
What happens if I start a Chapter 13 case but cannot complete the payment plan?
If unexpected circumstances make it impossible to continue your Chapter 13 payments, you have several options. You can request a plan modification to reduce your payments if your income dropped. You can convert your case to Chapter 7 if you qualify and want to eliminate remaining debts quickly. You may qualify for a hardship discharge if circumstances beyond your control prevent completion, and you have paid enough that creditors received what they would have gotten in Chapter 7. You can also dismiss your case voluntarily, though this leaves you responsible for any remaining debts.
Can I file Chapter 7 to eliminate unsecured debt and then file Chapter 13 to save my house from foreclosure?
You can file different chapters in sequence, but timing restrictions apply. You must wait four years after receiving a Chapter 7 discharge to receive a Chapter 13 discharge. However, you can file Chapter 13 immediately after Chapter 7 to save your home from foreclosure even if you will not receive a discharge of additional debts at the end of the Chapter 13 plan. This strategy, sometimes called a Chapter 20, allows you to eliminate unsecured debts in Chapter 7 and then use Chapter 13 to cure mortgage arrears.
Does filing Chapter 13 instead of Chapter 7 look better to future lenders?
Lenders have mixed views on this question. Chapter 13 demonstrates your willingness and ability to repay debts through a structured plan, which some lenders view favorably. However, Chapter 13 keeps you in bankruptcy for three to five years, delaying when you can apply for new credit. Chapter 7 eliminates debts quickly, allowing faster credit rebuilding. Most lenders focus more on your credit behavior after bankruptcy than on which chapter you filed. Making on-time payments, keeping credit utilization low, and maintaining a steady income matter more than the bankruptcy chapter.
Can I convert from Chapter 13 to Chapter 7 if my financial situation changes?
You have the right to convert from Chapter 13 to Chapter 7 once during your case, though you must qualify for Chapter 7 at the time of conversion. Common reasons for conversion include job loss, medical problems that reduce income, or discovering that the Chapter 13 plan is not feasible. Converting allows you to eliminate remaining unsecured debts quickly, rather than continuing with a plan you cannot complete. However, you lose the benefits of Chapter 13, such as mortgage arrearage cures and the ability to discharge certain debts that Chapter 7 cannot eliminate.
If I have no assets and minimal income, why would I ever choose Chapter 13 over Chapter 7?
Even with limited assets and income, Chapter 13 may be necessary or beneficial in certain situations. If you are behind on mortgage payments and want to save your home, Chapter 13 is typically required regardless of your asset situation. If you have debts that Chapter 7 cannot discharge but Chapter 13 can address through the repayment plan, Chapter 13 provides better long-term relief.
If you recently filed Chapter 7 and need bankruptcy protection again before the eight-year waiting period expires, Chapter 13 may be your only option. An attorney can explain whether your specific circumstances make Chapter 13 necessary or advantageous despite limited assets.
