What Is the Difference Between Chapter 7 and Chapter 13?
Both types of bankruptcy offer real relief — but they work very differently. Here's how to tell which one fits your situation.
Two Paths to a Fresh Start
Chapter 7 and Chapter 13 are the two most common forms of personal bankruptcy in Michigan. Chapter 7 wipes out most unsecured debts quickly, while Chapter 13 lets you reorganize and repay debts over time. The right choice depends on your income, the types of debt you carry, and what assets you want to protect.
Liquidation Bankruptcy
People with primarily unsecured debt, limited income, and no significant assets at risk.
A fast process — typically 3 to 6 months — that discharges most unsecured debts. A trustee may liquidate non-exempt assets, but most Michigan filers keep everything they own through available exemptions.
Advantages
- Fastest path to debt discharge (3–6 months)
- No repayment plan required
- Eliminates credit card debt, medical bills, payday loans
- Immediate automatic stay stops garnishments and lawsuits
- Most filers keep all exempt property
Limitations
- Must pass the means test (income limit applies)
- Does not stop mortgage foreclosure long-term
- Cannot discharge student loans, child support, or recent taxes
- Non-exempt assets may be sold by trustee
- Stays on credit report for 10 years
Reorganization Bankruptcy
Homeowners facing foreclosure, or people with regular income who want to repay debts over time and protect assets.
A 3 to 5 year repayment plan that lets you catch up on mortgage arrears, keep non-exempt property, and discharge remaining eligible debts at the end of the plan.
Advantages
- Stop foreclosure and save your home
- Catch up on missed mortgage or car payments
- Protect non-exempt property from liquidation
- Discharge remaining eligible debts after plan completion
- Protect co-signers from collection
Limitations
- Repayment plan lasts 3–5 years
- Must have regular income to fund the plan
- More complex and costly to administer
- Cannot discharge more debt than Chapter 7 in most cases
- Stays on credit report for 7 years
Side-by-Side Comparison
| Factor | Chapter 7 | Chapter 13 |
|---|---|---|
| Timeline | 3–6 months | 3–5 years |
| Income requirement | Must pass means test | Must have regular income |
| Repayment plan | None | Required |
| Stops foreclosure | Temporarily (automatic stay) | Yes — long-term if plan is followed |
| Protects non-exempt assets | No — trustee may sell them | Yes |
| Credit report impact | 10 years | 7 years |
| Best for | Unsecured debt, limited income | Homeowners, regular income |
Not Sure Which Chapter Is Right for You?
Attorney James L. Gutting will review your income, debts, and goals to recommend the best path forward. Call today for a confidential consultation.