German YusufovDecember 28, 2025

Debt problems can feel constant and overwhelming. Collection calls, missed payments, and the risk of losing property can make it hard to think clearly. Bankruptcy is designed to stop that pressure and give you a chance to reset.

At Yusufov Law Firm, PLLC, we help individuals and business owners in Mesa, Phoenix, and Tucson work through serious financial challenges. In this article, we explain the key differences between Chapter 7 and Chapter 13 bankruptcy, how each one works, and which option may fit your situation best.

Overview of Chapter 7 Bankruptcy

Chapter 7 is a liquidation process. A court-appointed trustee can sell nonexempt property, then pay creditors, while most unsecured debts get wiped out.

Credit cards, medical bills, and personal loans usually qualify for discharge. Most cases finish in about 5 to 6 months, which brings relief faster than a long repayment plan.

Chapter 7 involves income screening called the “means test.” In Arizona, your recent household income is compared to the state median for your family size (approx. $72,039 for a 1-person household or $86,745 for a 2-person household as of late 2025). If you are below these limits, you qualify automatically.  If you are above these limits, you might still qualify if your budget shows little to no extra money after allowed expenses.

Overview of Chapter 13 Bankruptcy

Chapter 13 is a repayment plan supervised by the court. You keep your property and pay back some or all of your debt over three to five years.

This chapter can stop a foreclosure and let you catch up on late house or car payments through the plan. There are limits on how much debt you can have. For cases filed between April 1, 2025, and March 31, 2028, your unsecured debt must be below $526,700 and your secured debt below $1,580,125.

Chapter 7 vs. Chapter 13: Key Differences

Both chapters stop collections once the case is filed. The better fit depends on income, assets, and goals, such as saving a house or getting a quick fresh start.

Eligibility Requirements

Asset Protection

In Chapter 7, a trustee may sell nonexempt items to pay creditors. In Chapter 13, you keep all property, and the plan accounts for any nonexempt value.

Both chapters allow bankruptcy exemptions. Arizona law protects certain property, including a generous homestead exemption that protects up to $437,600 of equity in your primary residence (as of 2026).

Debt Discharge

Chapter 7 aims to discharge eligible unsecured debts quickly, usually within months. Chapter 13 grants a discharge after the plan payments are completed.

Some debts are tough to wipe out in either chapter. Child support, alimony, and many tax debts generally survive the case.

Repayment Plan

Chapter 7 has no payment plan. Chapter 13 requires monthly plan payments for three to five years, based on your budget.

Through Chapter 13, you can catch up on past-due mortgage or car payments. This can stop foreclosure or a repossession if you stay current under the plan.

Secured Debts

Secured debts, like home loans and car loans, get different treatment in each chapter. In Chapter 7, you either surrender the collateral or keep paying, sometimes through a reaffirmation.

Chapter 13 can offer more tools. In some cases, a cramdown can reduce the balance on certain secured debts, with limits that apply to homes used as your primary residence and to newer vehicle loans.

Co-debtor Protection

Chapter 13 extends a stay that can protect co-signers on consumer debts while the plan is active. Chapter 7 does not provide that protection for co-debtors.

Impact on Credit

Both chapters affect credit. Chapter 7 stays on your report for 10 years, and Chapter 13 appears for 7 years.

Many people start rebuilding credit sooner than they expect. Steady payments, a secured card, and a clear budget can help you move forward.

Chapter Comparison Table

The chart below gives a quick side-by-side view. Your facts matter a lot, so use this as a starting point.

Topic Chapter 7 Chapter 13
Type Liquidation Repayment plan
Typical Length 5 to 6 months 3 to 5 years
Eligibility Means Test required Debt limits apply
Assets Nonexempt items at risk Keep assets, pay value through the plan
Unsecured Debts Usually discharged Paid partly or fully, then discharged
Secured Debts Surrender or reaffirm Cure arrears, possible cramdown in some cases
Co-debtor Stay No Yes, for consumer debts
Credit Report 10 years 7 years

If you are weighing chapters, a few quick questions can help focus the choice. Your answers point to timing needs and property goals.

  • Do you need fast relief with little to no extra income in your budget?
  • Are you behind on a home or car loan and want time to cure the arrears?
  • Do you need to protect a co-signer during the case?

With those questions in mind, let’s look at common situations where one chapter might fit better than the other. Small details can shift the decision.

When Chapter 7 Might Be the Better Option

Some people want a quick reset with minimal property at risk. In that setting, Chapter 7 often lines up well.

If you are out of work, have few assets, and need fast relief from credit cards or medical bills, Chapter 7 can clear those debts in months. The shorter timeline helps you move forward sooner.

Homeowners can still use Chapter 7. If your income is relatively low, and your equity fits within Arizona’s homestead exemption, Chapter 7 can work while keeping your home.

In summary, Chapter 7 is a:

  • Good fit for heavy unsecured debts and low income.
  • Useful if your assets are mostly exempt under Arizona law.
  • Faster path to a discharge with fewer court payments.

Even when Chapter 7 looks right, it helps to review any nonexempt property. A short check can avoid surprises with the trustee.

When Chapter 13 Might Be the Better Option

Others need time, structure, and a plan to save key assets. Chapter 13 gives you that runway.

Chapter 13 can protect co-debtors on consumer accounts. It also lets you keep your property while making payments that fit your budget.

You can catch up on missed mortgage or car payments over three to five years. That cure feature can stop a foreclosure or repossession if you meet the plan’s terms.

Divorce debts are another factor. Chapter 13 can discharge some obligations to an ex-spouse that relate to dividing marital property and debt, but not alimony, maintenance, or support.

The plan creates clear monthly payments and deadlines. Many clients find the structure easier to stick with than juggling many bills at once.

In summary, Chapter 13:

  • It is helpful for employed homeowners who fell behind on mortgages.
  • Offers time to repay taxes or other priority debts in an affordable way.
  • Can include a cramdown on some secured debts, with limits that apply.

If you earn a steady income and want to keep everything you own, Chapter 13 often makes sense. The plan is flexible within court rules and your budget.

Filing Bankruptcy After Closing Your Business

Shutting down a business leaves a mix of debts, including taxes and equipment loans. The right chapter depends on the type and size of those debts.

Chapter 7 can work if your tax debt is dischargeable or small enough to handle outside bankruptcy. This chapter can also wipe out leftover business credit cards or vendor bills.

Chapter 13 fits better if the tax debt is large and not dischargeable. A plan can spread payments over three to five years while stopping collection pressure.

If the equipment secured a loan, the business usually surrenders it when closing. Any unpaid balance after sale is treated as a general unsecured debt, which can be discharged in Chapter 7 or Chapter 13.

What if You’ve Filed for Bankruptcy Before?

Timing rules apply if you need a discharge in your new case. The clock usually starts ticking from the filing date of your previous case, not the discharge date.

Here are the waiting periods to be eligible for a discharge:

  • Chapter 7 → Chapter 7: You must wait 8 years.
  • Chapter 13 → Chapter 7: You must wait 6 years (unless you paid 100% of unsecured debts or 70% in good faith in the first case).
  • Chapter 7 → Chapter 13: You must wait 4 years (often called a “Chapter 20” if filed sooner to manage mortgage arrears without a discharge).
  • Chapter 13 → Chapter 13: You must wait 2 years.

If you are not sure about your specific dates, we can look up your prior case records to confirm exactly when you are eligible again.

Considering Bankruptcy? Contact Yusufov Law Firm Today

We help people and businesses in Mesa, Phoenix, and Tucson find a path that fits their goals. Our team looks at your facts, your timeline, and your budget, then builds a plan that makes sense.

Reach out to talk through your options and get a plan that fits your situation. Call us in Tucson at (520) 745-4429 or Mesa and Phoenix at (480) 788-0098. You can also reach us through our Contact Us page to schedule a time that works for you.