Chapter 7 vs Chapter 13 Bankruptcy: Which Is Right for You?
If you are struggling with overwhelming debt in Pennsylvania, New Jersey, or Maryland, understanding the differences between Chapter 7 and Chapter 13 bankruptcy is critical to making the right decision for your financial future. Attorney Michael Alan Siddons has helped hundreds of clients in Southeastern PA, South NJ, and Maryland choose the right bankruptcy chapter for their situation.
Quick Comparison: Chapter 7 vs Chapter 13
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Also Known As | Liquidation Bankruptcy | Wage Earner’s Plan |
| Timeline | 3-6 months | 3-5 years |
| Means Test Required | Yes – income must be below state median or pass expense deductions | No – available to anyone with regular income |
| Keeps Property | Exempt property protected; non-exempt may be sold | Keep all property |
| Mortgage Arrears | Cannot cure; may still face foreclosure | Can cure arrears over the plan period |
| Car Loan | Reaffirm, surrender, or redeem | Pay through plan; may reduce interest rate |
| Court Filing Fee | $338 | $313 |
| Debt Limits | No debt limits | Secured + unsecured debt under $2,750,000 |
| Repeat Filing Wait | 8 years after prior Ch. 7 discharge | 2 years after prior Ch. 13; 4 years after Ch. 7 |
| Best For | Low-income filers with mostly unsecured debt who need a fresh start quickly | Homeowners behind on mortgage, higher earners, or those with non-exempt assets |
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also called liquidation bankruptcy, is designed to give individuals a rapid fresh start by eliminating most unsecured debts. The entire process typically takes just 3 to 6 months from filing to discharge.
A court-appointed trustee reviews your assets and may sell any non-exempt property to pay creditors. However, most Chapter 7 filers in Pennsylvania keep all of their property thanks to state and federal exemptions that protect your home equity, vehicle, retirement accounts, and personal belongings.
Debts Eliminated by Chapter 7
- Credit card debt
- Medical bills
- Personal loans
- Utility bills
- Some older tax debts
- Deficiency balances after repossession or foreclosure
Debts NOT Eliminated by Chapter 7
- Most student loans (unless undue hardship is proven)
- Child support and alimony
- Recent tax debts (generally within the past 3 years)
- Criminal fines and restitution
- Debts incurred through fraud
Who Qualifies for Chapter 7?
To file Chapter 7 in Pennsylvania, you must pass the Means Test. This test compares your household income over the past 6 months to the median income for a family of your size in Pennsylvania. If your income is below the median, you automatically qualify. If it is above, additional expense deductions are calculated to determine eligibility.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, sometimes called the wage earner’s plan, allows individuals with regular income to restructure their debts through a court-approved 3 to 5 year repayment plan. Unlike Chapter 7, you keep all of your property while catching up on past-due obligations.
Chapter 13 is especially powerful for homeowners facing foreclosure because it allows you to cure mortgage arrears over the life of the plan while making regular mortgage payments going forward. This can save your home from foreclosure even if the sale date has already been scheduled.
Key Benefits of Chapter 13
- Stop foreclosure and cure mortgage arrears over 3-5 years
- Keep all of your property including non-exempt assets
- Reduce interest rates on car loans in some cases
- Pay back taxes over the plan period without additional penalties
- Protect co-signers from creditor collection
- Strip off wholly unsecured second mortgages (lien stripping)
Chapter 7 vs Chapter 13: Which Should You Choose?
Choose Chapter 7 If:
- Your income is below the Pennsylvania median for your household size
- You have mostly unsecured debts (credit cards, medical bills)
- You do not have significant non-exempt assets
- You are not behind on your mortgage or do not own a home
- You want the fastest path to a fresh start
Choose Chapter 13 If:
- You are behind on your mortgage and want to save your home from foreclosure
- Your income is above the Means Test threshold for Chapter 7
- You have non-exempt assets you want to keep
- You have co-signed debts and want to protect the co-signer
- You need to catch up on car payments or tax debts
- You filed a Chapter 7 case within the past 8 years
Pennsylvania Bankruptcy Exemptions
Pennsylvania allows filers to choose between state exemptions and federal exemptions. The federal exemptions are generally more generous and include:
- Homestead exemption: Up to $27,900 in home equity (2024 amounts, adjusted periodically)
- Motor vehicle: Up to $4,450 in vehicle equity
- Wildcard exemption: Up to $1,475 plus any unused homestead exemption up to $13,950
- Retirement accounts: Generally 100% exempt (IRAs, 401k, pension)
- Personal property: Household goods up to $700 per item
How the Bankruptcy Process Works in Pennsylvania
Step 1: Free Consultation
Meet with Attorney Michael Siddons for a free, confidential consultation. He will review your financial situation, run the Means Test, and recommend whether Chapter 7 or Chapter 13 is the better option for you.
Step 2: Credit Counseling
Complete a required pre-filing credit counseling course from an approved agency (typically takes about an hour and can be done online).
Step 3: Filing the Petition
Your attorney prepares and files your bankruptcy petition, schedules, and statements with the federal bankruptcy court. An automatic stay immediately goes into effect, stopping all creditor collection actions, lawsuits, wage garnishments, and foreclosure proceedings.
Step 4: Meeting of Creditors (341 Meeting)
Approximately 30-45 days after filing, you attend a brief meeting with the bankruptcy trustee. Your attorney will be with you. Creditors rarely attend.
Step 5: Discharge
For Chapter 7, discharge typically occurs about 60 days after the 341 meeting. For Chapter 13, discharge occurs after successful completion of your 3-5 year repayment plan.
Frequently Asked Questions
Will bankruptcy ruin my credit?
Bankruptcy does impact your credit score initially, but many clients see their scores begin to improve within 12 to 18 months after discharge. Chapter 7 remains on your credit report for 10 years and Chapter 13 for 7 years, but the practical impact diminishes over time. Many clients are able to qualify for car loans within a year and mortgages within 2-3 years of discharge.
Can I keep my house if I file bankruptcy?
In most cases, yes. In Chapter 7, your home is protected up to the exemption amount. In Chapter 13, you can cure mortgage arrears and keep your home through the repayment plan. In fact, many people file Chapter 13 specifically to save their home from foreclosure.
Will my employer find out?
Bankruptcy filings are public records, but employers are not notified. There are also federal laws that prohibit employers from terminating you solely because you filed for bankruptcy.
Can I file bankruptcy if I have a job?
Absolutely. Having a job does not prevent you from filing bankruptcy. If your income is below the median, you can file Chapter 7. If your income is above the median, Chapter 13 may be the right option. Many working professionals file bankruptcy every year.
How much does it cost to file bankruptcy?
Court filing fees are $338 for Chapter 7 and $313 for Chapter 13. Attorney fees vary but Siddons Law Firm offers affordable payment plans and free initial consultations. We believe everyone deserves access to bankruptcy protection regardless of their current financial situation.
Areas We Serve
Attorney Michael Siddons provides bankruptcy representation throughout:
- Pennsylvania: Delaware County, Chester County, Montgomery County, Philadelphia, Bucks County, Lancaster County, Berks County, and all of Southeastern PA
- New Jersey: Camden County, Burlington County, Gloucester County, Salem County, and South New Jersey
- Maryland: Cecil County, Harford County, Baltimore County
- New York: Staten Island
Schedule a Free Bankruptcy Consultation
Not sure whether Chapter 7 or Chapter 13 is right for your situation? Call Attorney Michael Siddons at 610-255-7500 for a free, confidential consultation. We will review your finances, run the Means Test, and recommend the best path forward for your family. We offer affordable payment plans and are committed to helping you get the fresh start you deserve.