Chapter 7 and Chapter 13 are both bankruptcy, but they solve different problems. One is a short liquidation case. The other is a multi-year repayment plan that exists mainly to save property. Choosing between them starts with what needs to be protected.
What you need to know
- Chapter 7 is a liquidation. A trustee reviews assets, non-exempt property may be sold, and qualifying unsecured debt may be discharged in a comparatively short case.
- Eligibility for Chapter 7 runs through a means test comparing household income to a state median, with a further expense calculation in some cases. The figures are updated periodically and must be confirmed at filing.
- Chapter 13 is a repayment plan over a period of years, funded from income. It can be used to cure mortgage arrears while keeping the home.
- New York filers choose between the state exemption scheme and the federal scheme. The choice applies as a package and can significantly change what is protected.
- Filing generally triggers an automatic stay that pauses most collection activity, subject to exceptions and to motions for relief.
- Neither chapter resolves everything. Support obligations, most recent taxes and most student loans follow separate rules.
What Chapter 7 does
A Chapter 7 case begins with a petition and detailed schedules listing income, expenses, assets, debts and recent transactions. A trustee is appointed, a meeting of creditors is held, and the trustee’s job is to look for non-exempt property that could be sold for the benefit of creditors. In most consumer cases there is nothing to sell, and the case is administered without a distribution.
Qualifying unsecured debt — credit cards, medical bills, personal loans, most deficiency balances — may be discharged. Secured debt is different: a mortgage or car loan survives as a lien on the property, so keeping the collateral generally means continuing to pay for it.
The screening step is the means test. Household income over a defined lookback period is compared to a median figure for a New York household of that size. Income below the median generally passes. Income above it moves to a second calculation involving allowed expenses. The medians and standards are revised periodically, so they have to be checked against the current tables rather than an older figure.
What Chapter 13 does
Chapter 13 is for filers who have regular income and something worth protecting. The filer proposes a plan that pays a set amount to the trustee each month over a period of years, and the trustee distributes to creditors according to priority rules. If the plan is completed, remaining qualifying balances may be discharged.
The classic use is curing mortgage arrears. A homeowner who has fallen behind but can now afford the regular payment may be able to spread the arrears over the plan while making ongoing payments outside it. That is a genuine alternative to a foreclosure sale in the right circumstances, and it pairs with the strategies described on the foreclosure defense page.
Chapter 13 also serves filers who do not qualify for Chapter 7 under the means test, filers with non-exempt assets they want to keep, and filers with priority tax debt that must be paid but could use time.
Side by side
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Basic idea | Liquidation of non-exempt assets, discharge of qualifying unsecured debt | Repayment plan funded from income over a period of years |
| Income requirement | Must pass the means test | Requires regular income sufficient to fund a plan |
| Case length | Relatively short from filing to discharge | Runs for several years before discharge |
| Mortgage arrears | Not cured by the case itself; handled with the servicer | May be cured through the plan while regular payments continue |
| Non-exempt assets | May be sold by the trustee | Generally kept, with value accounted for in plan payments |
| Vehicle loans | Keep paying, or surrender the vehicle | Payments may be restructured through the plan depending on the facts |
| Cost structure | Fees generally paid before filing | Much of the cost is built into the plan payments |
| Co-signers | Not protected by the filer’s stay | A co-debtor stay may apply to certain consumer debts |
| Second mortgages | Lien survives the case | A wholly unsecured junior lien may sometimes be addressed, depending on value |
Exemptions: the New York choice
Exemptions determine what a filer keeps. New York is one of the states that lets a filer elect either the state exemption scheme or the federal scheme, and the election is all-or-nothing rather than a menu.
The practical difference usually turns on real estate. A homeowner with meaningful equity often does better under the New York scheme, which provides a homestead protection that varies by county — Suffolk and Nassau fall in a different tier than upstate counties. A renter with no home equity may do better under the federal scheme, which includes a flexible wildcard that can be applied to cash, a vehicle or other property.
All of these figures are adjusted on a recurring schedule, and married couples filing jointly may be able to apply protections differently than a single filer. Because the amounts change, the analysis has to be run against the current numbers before a case is filed rather than from memory.
Do not move assets before filing. Transferring a car to a relative, paying back a family loan, or moving money out of an account in the months before a case can create serious problems. Trustees look at recent transfers, and undoing them is often within their power. Disclose everything and let counsel plan around it.
How the choice usually gets made
Counsel generally works through a short sequence. Does household income pass the means test? Is there a home, and is there equity beyond what the applicable exemption protects? Is the mortgage current or in arrears? Are vehicles financed, and are the payments sustainable? Is there priority tax debt or a support obligation? Are there non-exempt assets — a second property, an inheritance in progress, a business interest, a personal injury claim?
Those answers usually point to one chapter. A renter with modest wages, no assets and a pile of medical debt is generally looking at Chapter 7. A homeowner with equity, arrears and steady income is generally looking at Chapter 13. The harder cases are in the middle, and they turn on details like whether income is likely to change and whether the household can realistically sustain plan payments for years.
What filing does not do
- It does not discharge domestic support obligations
- It does not discharge most recent tax debt, though Chapter 13 can provide time to pay it
- It does not discharge most student loans absent a separate showing
- It does not automatically remove a mortgage or car lien from the property
- It does not protect a co-signer in a Chapter 7 case
- It does not repair a credit profile; rebuilding starts after the case, and no one should promise a score
Preparing for a consultation
The more accurate the picture, the more useful the advice. Helpful items include recent pay stubs, the last two filed tax returns, a current credit report, mortgage and vehicle loan statements, recent bank statements, retirement and life insurance statements, deeds for any real property, and copies of any lawsuits, judgments or garnishment papers.
Where a home is involved, the analysis frequently overlaps with real property questions — how title is held, whether there are old liens, whether a life estate or a transfer to children exists. Those issues are discussed on the real estate and elder law pages, and they can change which chapter makes sense.
The firm reviews the numbers, explains what each chapter would likely accomplish on the specific facts, and says clearly when neither is necessary. Background on the practice is on the bankruptcy and debt relief page.
The Law Offices of Christine Thea Rubinstein & Associates P.C. offers a free and confidential initial phone consultation to review income, assets and debts anywhere in Suffolk or Nassau County. Call 1-800-488-6734 or reach the firm through the contact page.
Frequently asked questions
Will I lose my house if I file Chapter 7?
It depends on equity and on which exemption scheme applies. Where equity is fully protected and the mortgage is current, homeowners often keep the home. Where equity exceeds the protection, a trustee may have an interest in it, and Chapter 13 is frequently the better structure. This is exactly the analysis to run before anything is filed.
Can I keep my car?
Generally the loan has to keep being paid to keep the vehicle, and any equity above the applicable exemption is relevant in Chapter 7. Chapter 13 may allow a financed vehicle to be handled through the plan depending on the facts, including when the loan was taken out.
Does my spouse have to file with me?
No. One spouse can file alone, and sometimes that is the better plan. But joint household income is typically considered in the means test, and a non-filing spouse remains liable on joint debts. The right structure depends on whose names the debts are in and how property is titled.
What happens if my income changes during a Chapter 13 plan?
Plans can sometimes be modified when circumstances change, and in limited situations a case may be converted or a hardship discharge considered. None of that is automatic. The important step is telling counsel early rather than missing payments and hoping.
How soon can collection calls stop?
Filing generally triggers an automatic stay, and creditors who receive notice are expected to stop. There are exceptions, the stay can be lifted on motion, and repeat filings can limit or shorten it. It is protection, not a guarantee, and how it applies depends on the facts.