Chapter 7 vs. Chapter 13 Bankruptcy: Which Should You File?

What Is the Core Difference Between Chapter 7 and Chapter 13?

Both chapters offer powerful debt relief under federal bankruptcy law, but they work in fundamentally different ways.

Chapter 7 — sometimes called a “liquidation” bankruptcy — discharges most unsecured debts (credit cards, medical bills, personal loans) without requiring you to repay them. In exchange, a bankruptcy trustee can sell non-exempt assets to pay creditors. In practice, the vast majority of Chapter 7 filers in Eastern Washington are “no-asset” cases, meaning everything they own is protected by Washington’s exemptions and creditors receive nothing. The process typically wraps up in three to four months.

Chapter 13 — called a “reorganization” or “wage-earner’s plan” — lets you keep all your property while repaying some or all of your debts through a court-approved plan lasting three to five years. At the end of the plan, remaining eligible unsecured debt is discharged.

Who Qualifies for Chapter 7?

Not everyone can file Chapter 7. Congress built in an income test called the means test to make sure higher-income filers use Chapter 13 instead. The test works in two steps:

• Step 1 — Median income comparison: If your average monthly income over the past six months is at or below Washington State’s published median income for a household your size, you pass automatically.
• Step 2 — Disposable income calculation: If you’re above the median, the test deducts allowed expenses from your income. If little or no disposable income remains, you may still qualify. If significant disposable income remains, you’ll likely need to file Chapter 13.

Washington’s median income figures are updated periodically by the U.S. Trustee Program. An attorney can run the numbers for you in minutes during an initial consultation.

There are also non-financial reasons you might be steered away from Chapter 7 — for example, if you have significant non-exempt equity in a home or business assets you don’t want a trustee to liquidate.

Who Is Chapter 13 the Better Fit For?

Chapter 13 tends to make more sense when one or more of these situations apply:

• You’re behind on your mortgage and want to catch up on arrears and save your home from foreclosure.
• You’re behind on a car loan and want to keep the vehicle.
• Your income is too high to pass the Chapter 7 means test.
• You have non-exempt assets — such as a second property or significant savings — that a Chapter 7 trustee could sell.
• You have debts that Chapter 7 can’t discharge (certain tax debts, for instance) that can be managed through a Chapter 13 plan.
• You received a Chapter 7 discharge within the past eight years and aren’t yet eligible to file again.

Chapter 13 requires steady income. The court needs confidence that you can make plan payments consistently for three to five years. If your income is irregular or uncertain, that creates real risk of a plan failing mid-stream.

What Debts Can Be Discharged in Either Chapter?

Both chapters discharge the same categories of unsecured debt — credit card balances, medical bills, utility arrears, personal loans, and most older civil judgments. Neither chapter discharges:

• Most student loans (absent extraordinary hardship, which is a high legal bar)
• Most recent income taxes
• Child support and spousal maintenance obligations
• Debts arising from fraud or intentional wrongdoing
• Criminal fines and restitution

If a significant portion of what you owe falls into non-dischargeable categories, bankruptcy may provide less relief than you expect. A frank conversation with an attorney before you file can prevent surprises.

How Do Washington State Exemptions Affect the Decision?

Washington allows filers to protect certain property from creditors — and in Chapter 7, from the bankruptcy trustee. Key Washington exemptions cover a portion of your home equity (the homestead exemption), one motor vehicle up to a set dollar amount, retirement accounts, household goods, tools of the trade, and more. Washington also allows filers to choose between state exemptions and federal exemptions, and the better set depends on what you own.

In our experience, Eastern Washington filers who own a home with meaningful equity often benefit from a careful exemption analysis before choosing a chapter. A home with equity above the homestead exemption cap could be at risk in Chapter 7, making Chapter 13 a safer choice for homeowners who want to stay put.

What Does the Process Look Like in Spokane?

Both Chapter 7 and Chapter 13 cases in Spokane are filed in the U.S. Bankruptcy Court for the Eastern District of Washington, which covers all of Eastern Washington. That court is located in Spokane. Here’s a practical comparison of what to expect:

• Chapter 7 timeline: File the petition → automatic stay stops all collections immediately → trustee meeting (called a 341 meeting) about a month later → discharge issued approximately 60 days after the 341 meeting if no objections. Total: roughly three to four months from filing to discharge.
• Chapter 13 timeline: File the petition and proposed repayment plan → automatic stay goes into effect → 341 meeting → plan confirmation hearing → three to five years of monthly plan payments → discharge of remaining eligible debt at the end of the plan.

In both cases, you must complete a credit counseling course from an approved provider before filing and a debtor education course before receiving your discharge. These are federal requirements, not optional.

Before you file anything, it’s worth speaking with our team. As Spokane’s experienced bankruptcy attorneys, we help Eastern Washington residents evaluate both options honestly — including situations where bankruptcy may not be the best first move.

What Are the Credit Impacts?

Both chapters will appear on your credit report. A Chapter 7 discharge can remain on your report for up to ten years from the filing date; a Chapter 13 discharge can remain for up to seven years. That said, many of our clients find their credit begins to recover meaningfully within one to two years of a discharge, particularly once they establish new positive payment history.

The credit impact is real but not permanent, and for most people drowning in debt, the relief far outweighs the temporary hit to their score.

The Bottom Line: How Do You Choose?

There’s no universal right answer. Chapter 7 is faster and simpler if you qualify and don’t have significant non-exempt assets. Chapter 13 is more powerful if you need to save a home, restructure secured debt, or can’t pass the means test. The decision turns on your specific income, expenses, assets, debts, and goals.

This article is general information — not legal advice for your situation. Every bankruptcy case is different, and the stakes are high enough that a one-size-fits-all approach can cost you. Call Schwab Law at (509) 795-1894 to talk through your options with an attorney who handles these cases in Spokane every week.

Key takeaways

• Chapter 7 eliminates most unsecured debt in about four months but requires passing a means test based on income.
• Chapter 13 takes three to five years but lets you keep property, catch up on mortgage arrears, and stop foreclosure.
• Washington State exemptions — including a homestead exemption — protect key assets, but the right exemption strategy depends on what you own.
• Neither chapter discharges student loans (in most cases), child support, or recent income taxes.
• Spokane bankruptcy cases are filed in the Eastern District of Washington; an attorney can run your numbers before you commit to a chapter.

Frequently asked questions

Helpful resources

• U.S. Bankruptcy Court, Eastern District of Washington
• Washington State Exemptions — RCW Title 6
• U.S. Trustee Program — Means Test Data
• Washington Courts — General Information

By Jonathan Schwab, Founding Attorney · July 3, 2026 · Reviewed by the attorneys at Schwab Law, P.L.L.C.