How to Choose Between Chapter 7 and Chapter 13

When facing bankruptcy, which chapter you file depends primarily on your goals, income, and what you intend to do with secured debts (like car loans or mortgages) on which you are behind.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Updated on November 12, 2025.

Listen: The Professor’s Audio Briefing.

Goal: Maximum Debt Discharge (Liquidation): Choose Chapter 7 Bankruptcy

Chapter 7 is often called liquidation bankruptcy. It is generally the right choice if your primary goal is to wipe out (discharge) eligible unsecured debts quickly, and you do not have non-exempt assets you are trying to protect.

• Benefit: Offers the fastest, most comprehensive discharge of debts (like credit cards, medical bills, and personal loans).
• Drawback (The Risk): It will NOT protect secured assets if you are behind on payments.As discussed in responding to the question of my readers Mandy and Rick, if you are behind on your car loan or mortgage payments, filing Chapter 7 will likely not stop the lender from repossessing the car or foreclosing on the home once the automatic stay ends or the lender gets relief from the stay. You must be current on payments to keep secured property in Chapter 7.
• Eligibility: Must pass the means test (demonstrate your income is below a certain threshold or you do not have enough disposable income to pay back debts). The income figures for the Means Test have changed recently, as that is updated every six months. With the latest increase, this could result in passing the Means Test when it wasn’t possible before. You can obtain the latest figures on the Means Test via this link.

Goal: Catching Up on Secured Debts (Reorganization):  Choose Chapter 13 Bankruptcy

Chapter 13 is often called a reorganization bankruptcy or wage earner’s plan. It is the only option if your primary goal is to keep secured property (like a car or home) on which you have missed payments.

• Benefit: Allows you to create a repayment plan (lasting three to five years) to catch up on missed payments (arrearages) over time, while continuing to make your regular monthly payments.
• The “Cram Down” Power: Chapter 13 also has powerful tools, like the ability to reduce the principal balance of certain car loans to the vehicle’s fair market value (the cram down). You can learn more about the cramdown via this recently updated post.
• Eligibility: Typically for filers whose income is too high to qualify for Chapter 7, or who have substantial assets to protect.

The Automatic Stay: A Temporary Tool

Regardless of which chapter you choose, the automatic stay is a crucial, but temporary, feature.

• What it does: It immediately stops most collection efforts, including foreclosure, repossession, and harassing phone calls.
• The Limit: It is not permanent and does not solve the underlying problem in Chapter 7. Lenders can (and often do) seek court permission (relief from the stay) to continue collection efforts on secured assets (like a car) if you are behind on payments and not providing adequate protection.

Fixing a Mistake: Conversion or Dismissal

If you file Chapter 7 but realize Chapter 13 was necessary (like Mandy and Rick):

• Conversion: You can file a motion to convert the case from Chapter 7 to Chapter 13, which requires judge’s approval.
• Dismissal: If you can immediately resolve the issue (e.g., get a loan from family to catch up on the car loan), you can file a motion to dismiss the Chapter 7 case. Failure to appear at the 341 meeting of creditors will also lead to a dismissal by the trustee.

Why Consider Voluntary Dismissal in Bankruptcy?

The ultimate choice depends on your specific financial situation and your goals for your assets.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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