The Two Main Consumer Bankruptcy Options
Most individuals who file for bankruptcy use either Chapter 7 or Chapter 13. They are very different in how they work, who qualifies, and what the outcome looks like.
Liquidation Bankruptcy
- Most unsecured debts discharged
- Process typically takes 3–6 months
- No repayment plan required
- Non-exempt assets may be liquidated
- Must pass the "means test"
- Stays on credit report ~10 years
Reorganization Bankruptcy
- 3–5 year repayment plan
- Can catch up on mortgage arrears
- Keep most or all property
- Must have regular income
- Debt limits apply
- Stays on credit report ~7 years
Key Differences Explained
Liquidation vs. Repayment
In Chapter 7, a trustee reviews your assets. Most filers are “no-asset cases” — meaning their assets are protected by exemptions and nothing is liquidated. Eligible debts are discharged, meaning you no longer legally owe them.
In Chapter 13, you propose a repayment plan to pay back some or all of your debts over 3–5 years based on your disposable income. At the end of the plan, remaining eligible balances may be discharged.
Who Each May Be Best For
Chapter 7 may be a better fit if you have limited income, few non-exempt assets, and primarily unsecured debt like credit cards and medical bills.
Chapter 13 may be a better fit if you have regular income, want to keep your home or car, are behind on secured debt, or don't qualify for Chapter 7.
The Means Test — An Overview
To qualify for Chapter 7, you generally must pass what's called the “means test.” This is a calculation that compares your income to the median income for your state. If your income is below the median, you typically qualify. If it's above, a more detailed calculation is done.
This module is educational only. Whether you qualify for Chapter 7 depends on your specific financial situation.
Educational note: The means test involves complex calculations. The Chapter 7 Qualification Check™ on JustiPal™ provides a preliminary educational estimate only — not a legal determination of eligibility.
Take the Chapter 7 Qualification Check™ →