Chapter 7 vs. Chapter 13: A Decision Framework for Bankruptcy Attorneys

Choosing between Chapter 7 and Chapter 13 is the first real judgment call in a consumer case, and it sets everything that follows — the timeline, the client's expectations, the prep work, and whether property is kept or surrendered. It's your call to make, not a paralegal's. But the decision runs on a short list of facts, and having them assembled cleanly before you counsel the client is what turns a good instinct into a defensible recommendation. Here's the framework, and the facts that drive it.

First question: does the client even qualify for Chapter 7?

Chapter 7 is liquidation — most unsecured debt is discharged in roughly four to six months, with the trustee selling any non-exempt property to pay creditors. Eligibility turns on the means test. You compare the debtor's current monthly income — a six-month lookback average — to the state median for their household size. Below median, the presumption of abuse under 11 U.S.C. § 707(b) doesn't arise and Chapter 7 is generally available. Above median, you run the full Form 122A-2 calculation of disposable income against the allowed expense standards, and the result can push the case toward Chapter 13 whether the client wants it or not.

When Chapter 13 is the better answer even if Chapter 7 is available

Passing the means test doesn't make Chapter 7 the right choice. Chapter 13 reorganizes debt into a three-to-five-year repayment plan, and several client goals are only reachable through it:

• Curing mortgage arrears to stop a foreclosure and keep the home — Chapter 13 lets the debtor make up the default over the plan term while staying current going forward.
• Protecting non-exempt assets a Chapter 7 trustee would otherwise liquidate, by paying their value to unsecured creditors over time instead.
• Handling priority debts — recent taxes, domestic-support obligations — that survive Chapter 7 anyway, by paying them in full through a structured plan.
• Shielding a co-signer, since the Chapter 13 co-debtor stay under 11 U.S.C. § 1301 reaches consumer co-debtors that Chapter 7 does not.
• Managing a vehicle or other secured claim on plan terms rather than reaffirming or surrendering.

The eligibility limits that can force the decision

Chapter 13 has its own gates. It's available only to individuals with regular income — a debtor without a predictable, sustainable payment can't confirm a plan. And there are hard debt ceilings: for cases filed through March 31, 2028, a debtor's noncontingent, liquidated debts must be under $526,700 unsecured and $1,580,125 secured (these figures are adjusted for inflation every three years, so verify the current numbers at filing). A client over the limit is out of Chapter 13 regardless of preference — which can send a higher-debt individual toward Chapter 7 or a Chapter 11 analysis instead.

Discharge scope: what each chapter actually wipes out

The chapters don't discharge the same debts. Chapter 13's discharge reaches a few obligations Chapter 7 leaves standing — debts for willful and malicious injury to property (not persons), debts incurred to pay a nondischargeable tax, and certain property-settlement debts from a divorce or separation. That narrow edge occasionally tips a close case. But both chapters leave the big non-dischargeable categories intact: domestic-support obligations, most recent taxes, government-backed student loans absent an undue-hardship showing, and criminal restitution. If the client's real problem is one of those, the chapter choice may matter less than they hope, and that's a conversation to have early.

A working decision framework

• Income: below median and few assets → Chapter 7 is usually cleanest. Above median with disposable income → Chapter 13 or nothing.
• Assets: significant non-exempt property the client wants to keep → Chapter 13.
• Arrears: behind on a mortgage or car they intend to keep → Chapter 13's cure mechanism.
• Debt size and income stability: over the Chapter 13 limits or no regular income → Chapter 7 (or a different chapter entirely).
• Goal: a fast fresh start vs. keeping property and catching up → this is often the deciding factor once eligibility is settled.

The bottom line

The chapter decision is legal judgment — the debtor's goals, the exemption analysis, the local trustee's tendencies, the strategy. That stays with you. What we do is get the underlying facts filing-ready: the means-test calculation, the asset and exemption picture, the arrears and payoff figures, and a clean read on the Chapter 13 debt limits — so the choice is easy to make and easy to defend. Then we prepare whichever chapter you file. Send us one case and see how much faster the decision comes into focus.

Services are provided exclusively to licensed attorneys and law firms. We are not a bankruptcy petition preparer and do not provide legal advice or services to the public. This article is general information, not legal advice.