Chapter 7 vs Chapter 13

When debt is weighing you down, deciding between Chapter 7 and Chapter 13 bankruptcy becomes a big decision you’ll have to make. The right path can protect your home, eliminate debt, and provide a clean slate. However, the wrong decision can create unnecessary stress and long-term financial strain. 

At Washington State Bankruptcy Lawyers, Erin Lane has helped individuals and families across the state with such decisions. With years of experience handling both Chapter 7 and Chapter 13 filings, she has a good understanding of Washington-specific laws, exemptions, and federal bankruptcy rules, and how she can use all this to your advantage. 

Erin, a graduate of Western State University College of Law, has long been committed to the legal field, with a focus on consumer protection and financial relief. She combines detailed legal knowledge with a client-first approach that guides Washington residents through Chapter 7 and Chapter 13 filings with clarity and purpose.

The Legalities Involved in Washington Bankruptcy Cases

Bankruptcy is primarily governed by federal law under Title 11 of the United States Code, but Washington residents must also follow state exemption laws and local court procedures. 

One important federal provision is 11 U.S.C. § 522, which allows debtors to choose between federal and state exemptions. Many filers in Washington rely on state exemptions, including home equity protections under RCW 6.13.030, the Washington Homestead Act. 

To qualify for these exemptions, you must meet the residency requirement outlined in federal law, which states you must be residing in Washington for at least 730 days before filing. While Chapter 7 and Chapter 13 operate within this framework, both apply the rules differently. 

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is often also referred to as a liquidation bankruptcy, but the term can be misleading. The reality is that most people who file in Washington do not lose their property because exemptions protect essential assets. Instead, Chapter 7 is designed to eliminate unsecured debt quickly.

How Chapter 7 Works

When you file for Chapter 7, a bankruptcy trustee is assigned to review your case. They may choose to sell any non-exempt assets you have. Most unsecured debts can be discharged in a Chapter 7, and the case typically closes between three and four months. Common dischargeable debts include credit cards, medical bills, and personal loans. 

Eligibility Requirements and Means Test

To file Chapter 7,  you must pass the means test, which compares your income to the Washington State median. If your income is too high, you may have to file Chapter 13 instead. This requirement comes from 11 U.S.C. § 707(b), which prevents the abuse of the bankruptcy system. 

What Happens to Your Property in Chapter 7

Washington exemptions play a big role in a Chapter 7 filing. Homeowners may protect a significant amount of equity in their primary residence based on median county home values. Other exemptions cover personal property, retirement accounts, and wages. If your assets are fully exempt, Chapter 7 can eliminate the debt without requiring any repayment. 

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, or the wage earner’s plan, reorganizes debt into a structured repayment plan that you will pay off between three and five years. Upon filing, you propose a repayment plan and make monthly payments to the trustee. 

Your creditors are then paid accordingly, and any remaining eligible debt is discharged at the end, as outlined under 11 U.S.C. § 1322 and § 1325, which govern plan requirements and court approval. 

Chapter 13 allows you to keep your property while you catch up on overdue debts, such as mortgage arrears. 

Eligibility Requirements

To qualify for Chapter 13, you must have a regular income, your debts must fall within federal limits, and you must be able to complete a repayment plan. Unlike Chapter 7, there is no strict income cap, though you must prove that your income can support the plan. 

Debt Limits

Chapter 13 currently uses a combined debt limit rather than separate caps for secured and unsecured debt. The total debt limit is approximately $2.75 million, including combined secured and unsecured debt. This change comes from the Bankruptcy Threshold Adjustment and Technical Corrections Act, which temporarily increased eligibility thresholds. This is subject to periodic adjustment under federal law. 

The debt that counts toward this limit includes secured debt such as mortgage and car loans, unsecured debts such as credit cards, medical bills, and personal loans, and business debts if you file individually. It’s based on what you owe at the time of filing, not what you expect to pay later. 

There are also federal limits that apply the same in Washington and other states. Even if you qualify under the debt cap, you must still have a regular income and propose a feasible repayment plan. 

The Key Differences Between Chapter 7 and Chapter 13

While both bankruptcy chapters offer Washington residents debt relief, they operate in different ways. 

Core Distinctions

• Chapter 7 eliminates debt quickly without a repayment plan.
• Chapter 13 restructures debt over time.
• Chapter 7 may involve asset liquidation.
• Chapter 13 allows you to keep your property while paying creditors.

Timeline

• Chapter 7 typically takes a few months.
• Chapter 13 lasts three to five years.

Debt Treatment

• Chapter 7 wipes out qualifying unsecured debts.
• Chapter 13 requires partial repayment before discharge.

Income Requirements

• Chapter 7 requires passing the means test.
• Chapter 13 requires a steady income.

Asset Protection 

• Chapter 7 may require selling non-exempt assets.
• Chapter 13 allows you to keep your property, but you may need to pay more.

Washington Exemption Laws and Your Case

When deciding between filing Chapter 7 or Chapter 13, Washington’s exemption laws may influence you. In Chapter 7, exemptions determine what you can keep. If your assets exceed exemption limits, the trustee may choose to sell them. Exemptions also matter in Chapter 13, but instead of losing property, you must repay creditors an amount equal to your non-exempt equity. 

When Chapter 7 Is the Better Option

Chapter 7 is the right path when debt is overwhelming, and your income is limited. It also makes the most sense when you have mostly unsecured debt, your income falls below the means test threshold, and you don’t have any significant non-exempt assets. In these cases, Chapter 7 is a faster path toward financial recovery, allowing you to move forward without long-term payment obligations.

When Chapter 13 Is the Better Option

Chapter 13 isn’t just an alternative. It can be a powerful tool in the right situation. This path may be preferable if you are facing a foreclosure, need time to catch up on car payments, have assets exceeding exemption limits, or earn too much to qualify for Chapter 7. 

Chapter 13 also helps manage debts that cannot be easily discharged, including certain taxes or domestic support obligations. It is more flexible and is often used as a long-term restructuring strategy rather than a quick exit. 

Foreclosure, Repossession, and Asset Protection

One of the biggest protections that bankruptcy offers is the automatic stay, established under 11 U.S.C. § 362. This states that the moment you file for bankruptcy, collection calls, wage garnishments, and foreclosure and repossession actions must stop. This protection applies to both Chapter 7 and Chapter 13 bankruptcy cases in Washington State. 

Credit Impact and Financial Recovery

Bankruptcy, no matter the type, affects your credit. However, its impact can vary. Chapter 7 remains on your credit report for up to 10 years, while Chapter 13 remains for about seven years. 

While this sounds like a significant amount of time, many start rebuilding their credit within just a year or two of filing. Additionally, bankruptcy can stop ongoing damage from missed payments, collections, and high balances.

How Chapter 7 and Chapter 13 Affect Co-Signers and Joint Debts

If you and a spouse, family member, or friend share a debt, bankruptcy can affect them in different ways depending on the chapter you file. 

In Chapter 7, your personal obligation on a debt may be discharged, but the co-signer remains fully responsible for the balance. Creditors can still pursue them for payment once the case is complete. 

Chapter 13 works differently because it includes a co-debtor stay under 11 U.S.C. § 1301, which temporarily prevents creditors from going after a co-signer while your repayment plan is still active. As long as you stay current on your plan payments, the co-signer is generally protected during that time. 

The long-term outcomes depend on how debt is treated under your plan. If paid in full, the co-signer is no longer at risk. If not, they can still be held responsible for any remaining balance after your case ends. 

How to Choose the Right Chapter in Washington

There is no one-size-fits-all answer to this question. That’s why it’s best to work with a qualified bankruptcy attorney who can help you assess all the available options and determine which route would be most appropriate for your specific circumstances. 

Even small differences, such as home equity or income fluctuations, can shift the recommendation from one chapter to another. 

Why Legal Guidance Matters

Bankruptcy isn’t just about filing the right forms; it’s all about strategy. Choosing between Chapter 7 and Chapter 13 requires applying both federal law and Washington-specific statutes, including exemption laws under RCW Title 6. Filing under the wrong chapter can lead to dismissal, the loss of property, or unnecessary repayment obligations. 

An experienced bankruptcy attorney can evaluate your eligibility under federal law, apply Washington exemptions to protect your assets, structure a Chapter 13 plan that is both realistic and sustainable, and ensure compliance with all court requirements in the Western or Eastern District of Washington. 

Moving Forward With the Right Plan

Debt can certainly feel overwhelming, but it helps to know you have options. At Washington State Bankruptcy Lawyers, Erin Lane works closely with clients across the state to determine which chapter offers the strongest path forward. 

Her approach focuses on protecting what matters most while helping clients regain financial stability as quickly as possible. 

Erin’s approach is rooted in her own working-class background and the firm belief that people deserve a fair chance to recover when life takes an unexpected turn. 

If you are considering bankruptcy, taking the time to understand your options and getting the right legal guidance can make all the difference in your outcome. Contact us today for more information or to schedule a free consultation. 

Frequently Asked Questions

Can I convert a Chapter 13 bankruptcy to Chapter 7 later?

Yes, in many cases, you can convert from Chapter 13 to Chapter 7 if your financial situation changes. This is allowed under 11 U.S.C. § 1307(a). However, you must still qualify for Chapter 7 at the time of conversion, including passing the means test. 

Converting from one chapter to another may also impact how your assets are treated, so timing matters.

Does Chapter 13 reduce the total amount I need to repay?

It may. In Chapter 13, unsecured creditors often receive only a portion of what is owed, depending on your disposable income and asset value. Your plan must commit projected disposable income, but not necessarily full repayment of unsecured debt. 

Will bankruptcy stop interest from accruing on debts?

In most cases, yes. Once you file, interest on dischargeable unsecured debts typically stops accruing. In Chapter 13, interest on secured debts may still apply depending on the debt type and terms.

Can I file Chapter 7 or Chapter 13 if I’ve filed before?

Yes, but there is a waiting period between the filings. For example, you must wait eight years between Chapter 7 filings, and you may be eligible to file Chapter 13 sooner, depending on your previous case. 

Do I need to include all debts when filing for bankruptcy?

Yes. Bankruptcy law requires the full disclosure of all your debts, assets, income, and financial history. Failure to list a creditor can lead to complications, including denial of discharge under 11 U.S.C. § 727(a). You must also disclose the debts you intend to keep.