Bankruptcy has a reputation problem. Most people arrive at the decision after months or years of stress — juggling minimum payments, ignoring calls from collectors, watching their credit score crater. By the time they call an attorney, they want it over quickly. That urgency leads to the most common bankruptcy mistake: choosing the wrong chapter.
Chapter 7 and Chapter 13 are fundamentally different tools. One eliminates most debt in about four months. The other restructures it over three to five years. They have different costs, different eligibility requirements, and different outcomes.
Chapter 7 is liquidation bankruptcy. A court-appointed trustee discharges most unsecured debt (credit cards, medical bills, personal loans), and you're done — typically in three to four months. It's the fastest and cheapest form of bankruptcy relief available.
What it costs: Attorney fees for Chapter 7 run $1,000–$2,500 depending on your location and case complexity. The court filing fee is $338. A required credit counselling course costs $10–$50. Total out-of-pocket: roughly $1,400–$2,900.
The catch: You have to qualify. Chapter 7 has a means test — your income must fall below your state's median income, or you must pass a more detailed calculation showing you don't have enough disposable income to repay debt. If you earn above median with meaningful disposable income, you may be forced into Chapter 13.
Asset risk: The trustee can sell non-exempt assets to pay creditors. Most people who file Chapter 7 have exempt assets only — meaning they keep everything. But if you have significant equity in a home, a valuable vehicle beyond your state's exemption, or investment accounts, Chapter 7 could put them at risk.
Chapter 13 is reorganisation bankruptcy. You propose a three-to-five year repayment plan, make monthly payments to a trustee, and at the end, remaining unsecured debt is discharged. It's more expensive, slower, and statistically has a much lower completion rate — only about 40% of Chapter 13 filers successfully complete their plans.
What it costs: Attorney fees are significantly higher — $3,000–$6,000 in most markets, because the attorney's work extends over the full repayment period. The filing fee is $313. Total attorney cost is 2–3x what Chapter 7 costs.
Why people choose it anyway: Chapter 13 lets you catch up on mortgage arrears over the plan period and keep your home — something Chapter 7 cannot do. If you're behind on your mortgage and want to avoid foreclosure, Chapter 13 is often your only tool. It also has no income ceiling — high earners who don't qualify for Chapter 7 can still use it.
Do I own significant assets I want to keep? A home with substantial equity, a business, investment accounts — if you have these and want to protect them, Chapter 13 is worth the additional cost and time.
Am I behind on my mortgage? If yes and you want to keep the home, Chapter 13 is almost certainly the right choice. It's one of the few tools that can cure mortgage arrears over time and stop foreclosure.
Do I pass the Chapter 7 means test? Your attorney will run this in the first meeting. If you qualify for Chapter 7 and have mostly exempt assets, the faster, cheaper option usually wins.
For local attorney costs, see our bankruptcy guides for New York, Chicago, and Los Angeles.