Chapter 7 vs Chapter 13 Bankruptcy: Which Is Right For You In New York?

If you are overwhelmed by debt, you have probably heard about Chapter 7 and Chapter 13. You may even know people who filed one or the other.

But when you are the one facing bills, collection calls, lawsuits, or possible foreclosure, the real question becomes:

"Which chapter is right for my situation: Chapter 7 or Chapter 13?"

The answer depends on your income, assets, goals, and the type of debt you have. This guide walks through the big differences between Chapter 7 and Chapter 13, especially for individuals and families in New York, including Nassau and Suffolk County.

This article is for general information only and is not legal advice. Always talk directly with a bankruptcy attorney about your specific situation.

The Big Picture: Chapter 7 vs Chapter 13

At a high level:

• Chapter 7 is usually a faster process focused on wiping out qualifying unsecured debts when you do not have significant assets or extra income.

• Chapter 13 is a repayment plan that helps you catch up on certain debts over time while keeping important property, like a home or car.

Both are powerful tools, but they work very differently.

What Is Chapter 7 Bankruptcy?

Chapter 7 is often called "straight bankruptcy" or "liquidation." For most individuals, it looks like this:

• You file your case and list all assets, debts, income, and expenses.

• A trustee reviews your file and checks if you have any non-exempt property.

• In many consumer cases, there are no non-exempt assets, so there is nothing to sell.

• Qualifying unsecured debts are discharged, usually within a few months.

Chapter 7 is often a good fit if you:

• Have mostly unsecured debt (credit cards, medical bills, personal loans)

• Have limited income or are below the median income for your household size

• Do not have significant non-exempt property that you are trying to protect

However, Chapter 7 is not ideal for everyone, and it does not address every kind of debt.

What Is Chapter 13 Bankruptcy?

Chapter 13 is a court-supervised repayment plan that usually lasts 3 to 5 years.

In Chapter 13:

• You propose a plan to repay some or all of your debts over time.

• You make a single monthly payment to a Chapter 13 trustee.

• The trustee distributes payments to your creditors according to the plan.

• At the end of your plan, the remaining eligible unsecured debt is discharged.

Chapter 13 is often a good fit if you:

• Are behind on a mortgage or car loan and want to catch up and keep the property

• Have income that is too high to qualify for Chapter 7

• Have non-exempt assets that could be at risk in a Chapter 7

• Need help managing tax debt or other complex obligations

Think of Chapter 7 as a quick reset for people with limited income and few assets, and Chapter 13 as a structured plan for people who have income or property they want to protect.

Eligibility: Who Can File Chapter 7 vs Chapter 13?

Chapter 7 Eligibility

To file Chapter 7, you must pass or otherwise qualify under the means test, which looks at:

• Your average income over the past several months

• Your household size

• Certain allowed expenses

If your income is below the median for your household size in New York, you may qualify more easily. If it is above, a more detailed analysis is required.

There are also restrictions if you received a prior bankruptcy discharge within a certain number of years.

Chapter 13 Eligibility

To file Chapter 13, you must:

• Have regular income (wages, self-employment, retirement income, etc.) that can support a plan payment

• Keep your total secured and unsecured debts within certain limits (which can change over time)

Chapter 13 is only available to individuals, not corporations or LLCs.

An experienced bankruptcy attorney can review your income, expenses, and debt to see which chapter you qualify for and which one actually helps you reach your goals.

How Each Chapter Handles Your Property

Chapter 7 And Your Property

In a Chapter 7 case:

• You can keep property that is protected by exemptions under New York or federal law.

• If you have non-exempt property, the trustee may be able to sell it and use the proceeds to pay creditors.

Common exempt property can include:

• A certain amount of equity in your home (homestead exemption, subject to local limits)

• A certain amount of equity in a vehicle

• Clothing, household goods, and basic personal items up to certain values

• Qualified retirement accounts and certain pensions

Many people are surprised to learn that they can file Chapter 7 and keep their car, household belongings, and often even their home, depending on their equity and exemptions.

Chapter 13 And Your Property

In Chapter 13:

• You usually keep all of your property, including non-exempt assets, as long as you follow your plan.

• You must pay at least as much to unsecured creditors as they would have received in a hypothetical Chapter 7 liquidation.

This "best interest of creditors" test means that if you have valuable non-exempt property, Chapter 13 may require higher payments, but it also allows you to keep that property under protection of the plan.

How Each Chapter Handles Different Types Of Debt

Unsecured Debts (Credit Cards, Medical Bills, Personal Loans)

• Chapter 7: Often discharged entirely, as long as there is no fraud or other issue.

• Chapter 13: You may pay a portion through your plan and discharge the rest at the end, depending on your income and assets.

  
  

Secured Debts (Mortgages, Car Loans)

• Chapter 7:

  • If you are current and the equity is exempt, you can often keep the property by staying current and sometimes reaffirming the debt.

  • If you are behind, the lender can usually resume foreclosure or repossession after the case, unless you work out an agreement.

    
    

• Chapter 13:

  • You can catch up on missed mortgage payments over 3 to 5 years while stopping foreclosure.

  • You may be able to restructure car loans or other secured debts within the plan.

Priority Debts (Certain Taxes, Child Support, Alimony)

• Chapter 7: Many priority debts are not discharged, so you remain responsible after the case.

• Chapter 13: Priority debts must usually be paid in full through the plan, but Chapter 13 can give you more time and structure to do that.

Speed, Cost, And Length Of Time

Chapter 7

• Typical length: about 3 to 4 months from filing to discharge in a simple case.

• Attorney fees are usually lower overall compared to a multi year Chapter 13, though they often must be paid more upfront.

Chapter 13

• Typical length: 3 to 5 years.

• Attorney fees are usually higher overall because the case is longer and requires ongoing work, but a portion is often paid through the plan over time.

If you need fast relief and mainly want to wipe out unsecured debt, Chapter 7 might be more appealing. If you need time to catch up on secured debts or protect valuable property, Chapter 13 may fit better.

Quick Comparison: Chapter 7 vs Chapter 13

You can think of the differences this way:

• Goal

  • Chapter 7: Fresh start by wiping out qualifying unsecured debts.

  • Chapter 13: Reorganize and repay over time while protecting property.

• Length

  • Chapter 7: A few months.

  • Chapter 13: 3 to 5 years.

• Property

  • Chapter 7: You keep exempt property; non-exempt items may be sold.

  • Chapter 13: You usually keep all property and pay based on its value and your income.

• Who It Helps Most

  • Chapter 7: People with lower income, few assets, and high unsecured debt.

  • Chapter 13: People with regular income, important assets to protect, or past due secured debts.

How Chapter Choice Affects Your Life On Long Island

For individuals in Nassau County, Suffolk County, and the greater New York area, the choice between Chapter 7 and Chapter 13 often comes down to practical questions:

• Are you trying to save a home from foreclosure? Chapter 13 may give you a realistic way to catch up.

• Are you mainly struggling with credit cards and medical bills and do not own significant property? Chapter 7 may give you a faster reset.

• Do you own a small business, rental property, or other assets that might be at risk in Chapter 7? Chapter 13 may offer more flexibility and protection.

• Is your income above the Chapter 7 means test threshold? Chapter 13 may be the better or only option.

A local bankruptcy attorney who understands New York exemptions, the local courts, and the realities of life on Long Island can help you evaluate all of this from a practical, real world standpoint.

Which Chapter Is Better For Your Credit?

Both Chapter 7 and Chapter 13 will appear on your credit report for several years. Generally:

• A Chapter 7 case can stay on your report for up to 10 years.

• A Chapter 13 case can stay on your report for up to 7 years.

However, the more important question is often:

"Which option actually puts me in a position to rebuild?"

Many people find that:

• Their credit was already severely damaged by late payments, collections, and high balances.

• After bankruptcy, they can begin to rebuild by using credit carefully, paying on time, and maintaining a realistic budget.

Choosing the right chapter can help you move forward more quickly, even though either filing will affect your credit in the short term.

Frequently Asked Questions: Chapter 7 vs Chapter 13

1. Is Chapter 7 always better because it is faster?

Not necessarily. Chapter 7 is faster, but it may not protect your home, car, or other important assets if you are behind on payments or have significant non-exempt equity. Chapter 13 may be slower, but it can give you a path to keep property and manage complex debts.

2. Can I choose Chapter 13 even if I qualify for Chapter 7?

Yes, in many cases. Some people who qualify for Chapter 7 still choose Chapter 13 because they want to catch up on a mortgage, pay tax debt over time, or protect property that could be at risk in Chapter 7. This is a strategic decision you should make with an attorney.

3. What if I start in Chapter 13 and cannot keep up with the payments?

If your circumstances change, it may be possible to modify your plan, convert to Chapter 7, or explore other options. The best approach depends on the reason you are struggling and how far along you are in the case.

4. Does Chapter 13 eliminate more debt than Chapter 7?

Both chapters can eliminate unsecured debt, but they do it differently. Chapter 7 usually wipes out qualifying unsecured debt without payments, while Chapter 13 includes partial repayment before a discharge. Chapter 13 is often chosen for its ability to manage secured and priority debts, not because it necessarily eliminates more types of debt.

5. How do I know which chapter is right for me?

You need to look at:

• Your income and expenses

• Your assets and exemptions

• The type and amount of your debt

• Your goals, such as saving a home, car, or business

A New York bankruptcy attorney can review all of this with you and give you clear guidance tailored to your situation.

Talk To A Long Island Bankruptcy Attorney About Chapter 7 vs Chapter 13

Reading about Chapter 7 vs Chapter 13 is a helpful start, but the decision is too important to make based on general information alone.

If you live in Nassau County, Suffolk County, or elsewhere in the New York metropolitan area and are weighing your options, Kamini Fox Law, PLLC can help you:

• Understand whether you qualify for Chapter 7, Chapter 13, or both

• See how each option would affect your home, car, and other property

• Estimate what a Chapter 13 payment plan might look like for you

• Decide which chapter is most likely to give you the fresh start you need

Call 516-493-9920 or contact us through the Kamini Fox Law PLLC website to schedule a confidential consultation about Chapter 7 vs Chapter 13 and your debt relief options.

This article is for informational purposes only and does not constitute legal advice. To receive advice specific to your circumstances, consult directly with an attorney licensed in your jurisdiction.