North Carolina Bankruptcy Attorneys
Chapter 7 vs. Chapter 13 Bankruptcy:
What Is the Difference?
Know Your Options
Two Types of Bankruptcy. Different Purposes.
The most common question people ask when they first call our office is: "Which type of bankruptcy is right for me?" The answer depends entirely on your situation — your income, the kinds of debt you have, the property you want to protect, and what you are trying to accomplish.
Both Chapter 7 and Chapter 13 stop creditor calls, lawsuits, and wage garnishments the moment you file. Both eventually discharge eligible debts. But they work in fundamentally different ways — and choosing the wrong one can leave real money on the table or cause you to lose property you could have kept.
This page walks through every major difference between the two chapters in plain language, so you can walk into your free consultation with a clear picture of where you stand.
The Short Version
Chapter 7 vs. Chapter 13 at a Glance
Not sure which fits your situation? A free consultation will clarify it in minutes.
Side-by-Side Comparison
Chapter 7 vs. Chapter 13: Full Comparison
Every major difference in one table — scroll across on mobile.
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Type | Liquidation | Reorganization / Repayment Plan |
| Timeline | 3–5 months to discharge | 3–5 year plan, then discharge |
| Income requirement | Must pass the Means Test | Must have regular income; no Means Test |
| Who can file | Individuals & businesses | Individuals only (not corporations) |
| Debt limits | None | Secured under $1.4M; unsecured under $465K |
| Unsecured debt | Discharged in full | Some repaid through plan; remainder discharged |
| Secured property | Keep if current & within exemptions | Keep all property; cure arrears through plan |
| Home foreclosure | Stops it temporarily; no catch-up tool | Can cure mortgage arrears; strongest protection |
| Car repossession | Keep if current; reaffirm loan | Keep & catch up; possible cramdown on old loans |
| Wage garnishment | Stopped immediately on filing | Stopped immediately on filing |
| Co-signer protection | None — creditors can still pursue co-signer | Co-debtor stay protects co-signers on consumer debts |
| Tax debt | Older qualifying taxes may be discharged | Non-dischargeable taxes paid through plan |
| Student loans | Generally not dischargeable (rare exceptions) | Generally not dischargeable (rare exceptions) |
| Court filing fee | $338 | $313 |
| Attorney fees | Lower — simpler case | Higher — complex multi-year case; often paid through plan |
| Credit report | 10 years from filing date | 7 years from filing date |
| Re-file wait | 8 yrs for Ch. 7 again; 4 yrs for Ch. 13 | 6 yrs for Ch. 7; 2 yrs for Ch. 13 |
Chapter 7 Explained
How Chapter 7 Works
Chapter 7 bankruptcy is a federal legal process that permanently eliminates most unsecured debt. When you file, the court issues an automatic stay — a federal order that immediately stops all collection activity, including phone calls, lawsuits, and wage garnishments. A court-appointed trustee reviews your financial documents, and roughly 60 days after your creditors' meeting, the court issues a discharge that wipes out your eligible debts permanently.
Despite its nickname — "liquidation bankruptcy" — very few people in North Carolina lose any property. State exemption laws protect your home equity (up to $35,000, or $70,000 for married couples), your vehicle (up to $3,500), your retirement accounts, and your household belongings. The trustee can only sell property that exceeds these exemptions, and in the vast majority of cases, there is nothing to sell.
The entire process, from filing to discharge, typically takes 4 to 6 months. There is no repayment plan. Once the discharge is entered, the debts are gone — and creditors can never collect on them again.
Who Is Chapter 7 Best For?
Chapter 7 tends to be the right fit when you have mostly unsecured debt (credit cards, medical bills, personal loans), your income is at or below the North Carolina median for your household size, you are current on your mortgage and car (or you do not want to keep them), and you do not have significant non-exempt assets that a trustee could liquidate.
Chapter 7: Key Facts
Chapter 13: Key Facts
Chapter 13 Explained
How Chapter 13 Works
Chapter 13 bankruptcy — sometimes called a "wage earner's plan" — lets you restructure your debts into a 3- to 5-year repayment plan rather than liquidating assets. The automatic stay goes into effect immediately on filing, stopping all collection activity. You then propose a plan that pays back your creditors based on what you can afford and what type of debt they hold.
At the end of your plan, any remaining eligible unsecured debt is discharged. But the real power of Chapter 13 is what it does in the meantime: it lets you catch up on a mortgage that is months behind, rescue a vehicle from repossession, pay off non-dischargeable tax debt without mounting penalties, and protect a co-signer from being hounded by creditors.
Because Chapter 13 is more complex and requires active oversight for 3 to 5 years, attorney fees are higher than in Chapter 7. However, those fees can typically be paid through your plan — meaning you may need less money upfront than you think.
Who Is Chapter 13 Best For?
Chapter 13 is often the better choice when you are behind on your mortgage or car loan, your income is above the Chapter 7 means test limit, you have non-exempt property you want to keep, you have co-signed debts where you want to protect the co-signer, or you have tax debt or other obligations that require a structured payoff plan.
What Gets Eliminated?
Debt Discharge: Chapter 7 vs. Chapter 13
Some debts are treated identically in both chapters. Others differ significantly. Here is how each type of debt is handled.
| Debt Type | Chapter 7 | Chapter 13 |
|---|---|---|
| Credit card debt | ✓ Discharged | ✓ Discharged (after plan) |
| Medical bills | ✓ Discharged | ✓ Discharged (after plan) |
| Personal / payday loans | ✓ Discharged | ✓ Discharged (after plan) |
| Utility arrears | ✓ Discharged | ✓ Discharged (after plan) |
| Old income taxes (3+ yrs) | ✓ May be discharged if conditions met | ✓ May be discharged; non-dischargeable portion paid through plan |
| Recent income taxes | ✗ Not dischargeable | ✗ Paid through plan (without further interest/penalties) |
| Mortgage arrears | ✗ Not curable — no catch-up tool | ✓ Catch up over plan period; keep home |
| Car loan arrears | ✗ Not curable — reaffirm or surrender | ✓ Catch up through plan; keep vehicle |
| Student loans | ✗ Generally not dischargeable | ✗ Generally not dischargeable |
| Child support / alimony | ✗ Not dischargeable | ✗ Must be paid in full through plan |
| Criminal fines / restitution | ✗ Not dischargeable | ✗ Not dischargeable |
| Divorce property settlement | ✗ Not dischargeable | ✓ May be dischargeable (not support) |
| Debts from fraud | ✗ Not dischargeable | ✗ Generally not dischargeable |
| Willful / malicious injury | ✗ Not dischargeable | ✓ May be dischargeable in some cases |
Discharge eligibility depends on individual circumstances. A consultation with a bankruptcy attorney will confirm what applies to your specific debts.
Your Property
What Happens to Your Property?
"Will I lose everything?" is the most common fear — and in almost every North Carolina case, the answer is no. Here is why.
Want to know what you'd actually lose in Chapter 7? For most NC families, the answer is nothing. See our full guide: Will I Lose My Property in Bankruptcy?
Mortgage & Foreclosure
Behind on Your Mortgage?
Chapter 7
Chapter 7 triggers the automatic stay the moment you file, which pauses any active foreclosure. However, this protection is temporary. Chapter 7 gives you no mechanism to catch up on missed mortgage payments — and once the stay lifts (or the lender gets court permission to proceed), the foreclosure continues.
If you are current on your mortgage and want to keep your home, Chapter 7 can help by eliminating other debts that are straining your budget. But if you are significantly behind, Chapter 7 alone is not a long-term solution for saving the home.
Chapter 13
Chapter 13 is specifically designed to save homes from foreclosure. The automatic stay halts foreclosure immediately, and your repayment plan allows you to cure the missed payments — the arrears — over 3 to 5 years, in manageable installments alongside your regular mortgage payment.
As long as you make your plan payments going forward and stay current on your ongoing mortgage, the lender cannot foreclose. At the end of your plan, you are caught up on the mortgage and own your home free of the prior default.
Vehicle & Car Loans
Keeping Your Car
Chapter 7 & Your Car
In Chapter 7, you generally have three options for a financed vehicle:
If the car is paid off and its equity is within the $3,500 NC exemption, it is fully protected — no action needed.
Chapter 13 & Your Car
Chapter 13 gives you more tools for dealing with car loans:
The cramdown provision can produce significant savings for people with older, underwater car loans.
Immediate Protection
Wage Garnishment, Lawsuits & Creditor Calls
The automatic stay under 11 U.S.C. § 362 is one of the most powerful tools in bankruptcy law — and it applies identically in both Chapter 7 and Chapter 13. The moment you file, a federal court order takes effect that immediately stops:
Creditors who violate the automatic stay face sanctions from the bankruptcy court. This is not a polite request — it is a court order. Both chapters provide this protection equally on the day you file.
One Important Difference
In Chapter 7, the stay is temporary and ends when the case closes (typically 4–6 months). Once your discharge is entered, the debt is eliminated so the garnishment cannot resume — but during the case, a creditor can sometimes get court permission to lift the stay on secured property.
In Chapter 13, the stay lasts for the full 3–5 year plan period. It also includes a co-debtor stay that protects co-signers on consumer debts — something Chapter 7 does not offer.
If a creditor has already obtained a judgment and is garnishing your wages, filing today stops it. Consult with our office immediately if a garnishment is active.
Income Tax Debt
How Each Chapter Handles Tax Debt
Chapter 7 & Tax Debt
Certain income taxes may be dischargeable in Chapter 7 if all of these conditions are met:
If these conditions are met, the qualifying tax debt is eliminated just like credit card debt. Recent taxes (last 3 years) are not dischargeable in Chapter 7.
Chapter 13 & Tax Debt
Chapter 13 offers a more comprehensive tax debt strategy:
For large or complex tax debts, Chapter 13 is often the more strategic choice. The plan stops accrual of interest and penalties, which is a significant benefit for substantial balances.
Co-Signers
Protecting Someone Who Co-Signed for You
If a family member or friend co-signed a loan for you, your bankruptcy filing has a direct impact on them. The two chapters treat co-signers very differently — and this difference alone can determine which chapter is the right choice.
Chapter 7 — No Co-Signer Protection
In Chapter 7, the automatic stay protects you — but not your co-signer. When you discharge a co-signed debt in Chapter 7, the creditor can immediately shift all collection activity to your co-signer and pursue them for the full balance. Your discharge does not affect the co-signer's obligation.
If protecting a co-signer is a priority, Chapter 7 is not the right chapter.
Chapter 13 — Co-Debtor Stay
Chapter 13 includes a co-debtor stay under 11 U.S.C. § 1301. This prevents creditors from collecting on consumer debts from your co-signer for as long as your plan is active. If the debt is paid in full through your plan, the co-signer's obligation is fully satisfied.
This protection applies to consumer debts only (not business debts). It is one of Chapter 13's most important advantages for people who have borrowed money with a co-signer — a parent, spouse, or sibling who stepped up to help.
Income & Eligibility
Who Qualifies for Each Chapter?
Chapter 7: The Means Test
Chapter 7 eligibility is determined by the Means Test (11 U.S.C. § 707(b)):
Step 1 — Income comparison: Your average monthly income over the past 6 months is multiplied by 12 and compared to the North Carolina median income for your household size. If you are below the median, you automatically qualify — no further analysis needed.
Step 2 — Expense deduction: If you are above the median, a second calculation deducts allowable IRS expense standards and actual secured debt payments to determine your disposable income. If your disposable income falls below the allowed threshold, you still qualify.
Most people who need Chapter 7 pass the means test. An attorney can confirm your eligibility in a free consultation — you do not need to calculate it yourself.
Chapter 13: Income & Debt Limits
Chapter 13 does not use the means test for eligibility. Instead, two requirements apply:
Regular income: You must have a regular, stable income sufficient to make monthly plan payments. This includes wages, salary, self-employment income, Social Security, pension, or rental income. The income just needs to be reliable enough to fund a plan.
Debt limits: As of 2024, your total secured debt must be under approximately $1,395,875 and total unsecured debt under $465,275. These limits are periodically adjusted. Most individuals fall well within them.
Chapter 13 is sometimes described as the "higher-income" option — but it is really the right chapter when you have assets to protect, arrears to cure, or co-signers to shield, regardless of income level.
Cost
How Much Does Each Chapter Cost?
For a full breakdown of all costs, see: How Much Does It Cost to File Bankruptcy?
Credit Impact
How Each Chapter Affects Your Credit
| Factor | Chapter 7 | Chapter 13 |
|---|---|---|
| Credit report duration | 10 years from filing date | 7 years from filing date |
| Initial score impact | Significant drop (varies by starting score) | Significant drop (varies by starting score) |
| If already damaged credit | Filing can accelerate recovery | Filing can accelerate recovery |
| Rebuilding timeline | Many clients see improvement in 12–24 months | Gradual improvement over plan period |
| New credit during process | Difficult to obtain new credit during case | Court permission generally required to take on new debt |
| After discharge | Can apply for secured credit cards, car loans | Similar rebuild path after plan completion |
| Mortgage eligibility | 2 yrs after Ch. 7 discharge (FHA); 4 yrs (conventional) | 2 yrs after Ch. 13 discharge or 1 yr into plan (FHA) |
For the full picture on bankruptcy and credit, including the rebuilding steps, see: How Does Bankruptcy Affect My Credit?
Pros & Cons
Advantages and Disadvantages
Which Chapter Is Right for You?
Decision Guide
Use this table as a starting point. A free consultation with our office will confirm which chapter fits your specific situation.
| Your Situation | Chapter 7 | Chapter 13 |
|---|---|---|
| You have mostly credit card / medical debt | ★★★ | ★★☆ |
| You want the fastest possible fresh start | ★★★ | ★☆☆ |
| Your income is below the NC median | ★★★ | ★★☆ |
| You are behind on your mortgage and want to keep your home | ★☆☆ | ★★★ |
| You are behind on your car and want to keep it | ★★☆ | ★★★ |
| Your income is too high to pass the Chapter 7 means test | ★☆☆ | ★★★ |
| You have significant non-exempt assets to protect | ★☆☆ | ★★★ |
| You co-signed a loan and want to protect the co-signer | ★☆☆ | ★★★ |
| You owe tax debt you cannot discharge | ★☆☆ | ★★★ |
| You have a vehicle loan older than 910 days that is underwater | ★★☆ | ★★★ |
| You want the debt off your credit report sooner | ★★☆ | ★★★ |
| You have a divorce-related property settlement debt | ★☆☆ | ★★★ |
| You have no regular income | ★★★ | ★☆☆ |
★★★ Strong fit · ★★☆ Possible fit · ★☆☆ Usually not the right chapter
A Common Mistake
What Happens If You Choose the Wrong Chapter?
Filing the wrong chapter is more common than most people realize — and the consequences can be serious. Here are the most frequent mistakes we see:
Filing Chapter 7 When You Should Have Filed Chapter 13
Filing Chapter 13 When You Should Have Filed Chapter 7
The easiest way to avoid this mistake: a free 30-minute consultation with a board-certified bankruptcy attorney. We will tell you exactly which chapter fits your situation — and why.
Schedule a Free Consultation No pressure · no commitmentReady to Find Out?
What Happens When You Contact Duncan Law
Most people leave their first consultation with a clear answer about which chapter is right for them — and a path forward.
You call or schedule online.
Reach us by phone at (336) 856-1234 or schedule at your convenience at duncanlawonline.com/book-with-damon. Calls are answered 24/7.
You receive a brief intake form.
A few days before your consultation, we send a short intake form. This helps us focus the call on your options rather than basic information gathering.
You speak with an attorney.
A board-certified bankruptcy attorney reviews your income, debts, and assets. We identify whether Chapter 7 or Chapter 13 fits your situation — and explain both options honestly.
We walk you through next steps.
If bankruptcy is the right path, we explain what filing looks like, what it costs, and what to expect. There is no pressure and no commitment at this stage.
You decide if and when to move forward.
You are in control. We give you the information you need to make a confident decision on your own timeline.
Our Team
Meet the Attorneys Who Will Handle Your Case
Common Questions
Frequently Asked Questions
Chapter 7 is a liquidation bankruptcy that eliminates most unsecured debt in 3 to 5 months — no repayment plan required. Chapter 13 is a reorganization bankruptcy where you repay some or all debt over a 3- to 5-year plan, then discharge the remainder. Chapter 7 is faster; Chapter 13 gives you tools to save secured property and manage debts that survive Chapter 7.
Chapter 7 typically takes 4 to 6 months from filing to discharge. Chapter 13 requires completing a 3- to 5-year repayment plan before receiving a discharge. Both chapters provide immediate relief through the automatic stay on the day you file.
Chapter 13. It lets you catch up on missed mortgage payments through your repayment plan and stop foreclosure permanently. Chapter 7 only temporarily pauses foreclosure through the automatic stay — it provides no tool to cure mortgage arrears.
Generally yes, but the mechanism differs. In Chapter 7, you keep the car by staying current on payments and signing a reaffirmation agreement. In Chapter 13, you can catch up on missed payments through the plan and may be able to reduce the loan balance (cramdown) on older, underwater car loans.
Only Chapter 7 requires passing the means test. Chapter 13 does not use the means test — instead you must show regular income sufficient to fund a repayment plan, and your total debt must fall under federal limits.
In Chapter 7, the automatic stay does not protect your co-signer. After your discharge, the creditor can pursue your co-signer for the full balance. Chapter 13 is a much better option if protecting a co-signer matters — it includes a co-debtor stay that prevents creditors from collecting from co-signers on consumer debts while your plan is active.
Chapter 7 stays on your credit report for 10 years from the filing date. Chapter 13 stays for 7 years. Both affect your credit score initially, but the credit impact often begins to diminish within 12 to 24 months as you rebuild.
It depends on the age of the debt. In Chapter 7, older income taxes that meet certain conditions may be fully discharged. In Chapter 13, non-dischargeable tax debt is paid through the plan without additional penalties or interest accruing, and qualifying older taxes can be discharged at the end of the plan. For large or complex tax situations, Chapter 13 is often more strategic.
The court filing fee is $338 for Chapter 7 and $313 for Chapter 13. Attorney fees are typically higher for Chapter 13 due to the complexity of a multi-year case, but in Chapter 13 those fees can usually be paid through your repayment plan — so you may need less upfront than you think.
Yes, in most cases. If you lose your job or income drops during a Chapter 13 case, you generally have the right to convert to Chapter 7 if you qualify. There are eligibility and timing rules, so discuss any changed circumstances with your attorney right away rather than letting the case fail.
Debts that survive both Chapter 7 and Chapter 13 include: child support and alimony, most student loans (with very rare exceptions), criminal fines and restitution, debts from fraud or intentional injury, and most recent income taxes. Chapter 13 can discharge a few additional types of debt that Chapter 7 cannot, such as some divorce-related property obligations.
After a Chapter 7 discharge: 8 years to file Chapter 7 again, or 4 years to file Chapter 13. After a Chapter 13 discharge: 6 years to file Chapter 7 (with some exceptions), or 2 years to file Chapter 13. These waiting periods run from the filing date of the prior case, not the discharge date.
Yes — the automatic stay takes effect the moment you file, regardless of chapter. It immediately stops creditor calls, lawsuits, garnishments, foreclosure, and repossession. One key difference: Chapter 13 also includes a co-debtor stay that protects co-signers, which Chapter 7 does not provide.
That is exactly what a free consultation is for. Bring a basic picture of your income, debts, and any secured property you want to keep. A board-certified bankruptcy attorney will identify which chapter fits your situation in about 30 minutes — and give you an honest recommendation, not a sales pitch.
Yes. The automatic stay stops active wage garnishments the moment you file — in both Chapter 7 and Chapter 13. Your full paycheck is restored. Once your discharge is entered (Chapter 7) or your debts are paid or discharged through the plan (Chapter 13), the underlying debt is eliminated and the garnishment cannot resume.
Yes, but timing restrictions apply. The eligibility waiting periods depend on which chapter you filed previously and which chapter you want to file now. An attorney can confirm whether you are eligible based on your filing history.
The key factors are: your income (means test), the types of debt you have, whether you are behind on secured property like a home or car, whether you have co-signed debts, whether you have non-exempt assets to protect, and what you want to accomplish. Most people who need bankruptcy can qualify for one chapter or the other — and sometimes both. A free consultation will identify which is the better fit for your goals.
Get Your Answer Today
Talk to a Board-Certified Bankruptcy Attorney — Free
Not sure whether Chapter 7 or Chapter 13 is right for you? Schedule a free consultation. We will review your situation, tell you which chapter fits, and answer every question — no pressure, no obligation.
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Start with a Free Consultation
One conversation with a board-certified specialist can tell you which chapter is right for you — and what your life could look like on the other side of this debt.