How Does Chapter 7 Bankruptcy Differ From Chapter 13 for Individuals?
April 22, 2026
Facing overwhelming debt is stressful. You might feel trapped by mounting costs, harassing creditor calls, or uncertainty about the future. It’s normal to feel anxious and even ashamed, but you’re not alone. Many people find themselves in situations where bankruptcy becomes a practical step toward regaining stability.
At Schwartz, Hanna & Olsen, P.C., we know bankruptcy can be daunting, but we are dedicated to helping you examine your financial circumstances, determine whether Chapter 7 or Chapter 13 bankruptcy is the best option, and work toward achieving financial stability.
With offices in South Plainfield, Hamilton Township, and Somerville, New Jersey, as well as Mineola, New York, we serve individuals in both states, including Middlesex County, Somerset County, Morris County, Essex County, Passaic County, Bergen County, Sussex County, and Hunterdon County. Contact us today to schedule a free consultation and explore which option is right for you.
Chapter 7 vs. Chapter 13 Bankruptcy
While both Chapter 7 and Chapter 13 bankruptcy can help individuals handle debt, they operate very differently. Chapter 7 bankruptcy, often called a “liquidation” bankruptcy, involves selling certain assets to pay creditors. It’s usually faster than Chapter 13, often completed within a few months, and can provide a clean slate for most unsecured debts.
In Chapter 7 bankruptcy, certain property is often protected under state exemptions; however, property that isn’t exempt is typically sold to repay creditors. Once the bankruptcy process is complete, most unsecured debts, such as credit card balances and medical bills, can be discharged in full.
Chapter 13 bankruptcy, on the other hand, involves a structured repayment plan. Instead of liquidating your assets, you will typically keep your property and create a repayment plan to pay off a portion of your debts over three to five years. Your disposable income is used to make these payments to creditors, and some unsecured debts can be partially discharged once the repayment plan is completed.
Choosing which type of bankruptcy to file for depends on your income, assets, and long-term financial goals. Chapter 7 bankruptcy often appeals to those with limited income who want a quicker resolution, whereas Chapter 13 bankruptcy is better suited to those with regular income who want to protect certain assets while repaying creditors.
Who Qualifies for Each Option
There are strict eligibility requirements for both Chapter 7 and Chapter 13 bankruptcy. If you are unsure whether you may be eligible, consult an experienced bankruptcy attorney for assistance. To be eligible for Chapter 7, you must generally meet the following criteria:
Income means test: Your income must fall below the state’s median level for a household of your size.
Credit counseling: You must complete a court-approved credit counseling course within 180 days before filing.
Debt type: Most unsecured debts, such as credit card and medical debts, can be discharged.
These requirements are strict, especially the income means test. If your income exceeds your state's median income, Chapter 13 bankruptcy may be a better option. To qualify for Chapter 13 bankruptcy, you will generally need to meet the following criteria:
Income requirements: You must have a steady source of income to make monthly payments under a repayment plan.
Debt limits: Your total secured and unsecured debts must be below the established federal limits.
Payment commitment: You will need to commit to a repayment plan lasting three to five years.
Chapter 7 bankruptcy is generally faster and more immediate, while Chapter 13 offers more flexibility if you need to pay off debts gradually without losing property. Knowing these differences can help you make an informed decision about which option is better for your situation.
How Bankruptcy Can Impact Your Assets, Debts, and Credit
Regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, your credit will be affected. However, knowing how it will be impacted can help you plan to regain financial stability. A Chapter 7 bankruptcy filing will stay on your credit report for up to 10 years, and you’ll likely face higher interest rates. However, your discharged debts can quickly free you from ongoing financial obligations, potentially reducing your need to access credit or loans.
Chapter 13 bankruptcy, on the other hand, will remain on your report for up to seven years. Successfully completing a repayment plan can demonstrate financial responsibility and improve your credit over time. Both forms of bankruptcy can provide relief from creditor harassment, lawsuits, or wage garnishments, but it's equally important to consider how bankruptcy will impact your finances after the process is complete.
Contact Our Experienced Bankruptcy Attorneys Today for Guidance and Support
Chapter 7 bankruptcy can provide a faster route to financial freedom, while Chapter 13 bankruptcy allows you to structure debt repayment and retain your property. Choosing the right type of bankruptcy is a deeply personal decision, and having the right guidance can make a significant difference.
At Schwartz, Hanna & Olsen, P.C., our attorneys will work closely with you to evaluate your situation and help you determine which type of bankruptcy best suits your needs. We’ll help you understand the eligibility rules, the impact on your assets, and how each option affects your long-term financial health.
If you’re struggling with debt, contact our firm today to schedule a free case consultation. With offices in South Plainfield, Hamilton Township, and Somerville, New Jersey, as well as Mineola, New York, we serve individuals in both states, including Middlesex County, Somerset County, Morris County, Essex County, Passaic County, Bergen County, Sussex County, and Hunterdon County.