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Summary:
What Is Chapter 7 Bankruptcy?
Chapter 7 is what most people picture when they think “bankruptcy.” It’s sometimes called liquidation bankruptcy because a court-appointed trustee can sell your non-exempt assets to pay creditors. But here’s what matters: most people filing Chapter 7 in Brooklyn don’t lose anything.
The process moves fast. You file. Creditors stop calling immediately thanks to something called an automatic stay. About a month later, you attend a short meeting with the trustee. Then, roughly three to four months after filing, you get your discharge—meaning eligible debts are legally erased.
Chapter 7 works best when you’re dealing with unsecured debt like credit cards, medical bills, and personal loans. It doesn’t require a repayment plan. You’re not making monthly payments to the court. Once your case closes, you’re done.
Chapter 7 Eligibility and the Means Test
Not everyone qualifies for Chapter 7. You have to pass what’s called the means test, which compares your income to the median income for a household your size in New York. If you’re below that line, you’re eligible. If your income is higher, the test gets more detailed—it looks at your actual monthly expenses to figure out whether you have money left over to repay creditors.
The means test exists to prevent people with significant disposable income from using Chapter 7 to avoid debts they could reasonably pay back. If you don’t pass, Chapter 13 becomes your option. But income isn’t the only factor. You also can’t have filed for Chapter 7 in the past eight years, or Chapter 13 in the past six years.
Before you file, you’re required to complete a credit counseling course from an approved agency. This happens within 180 days before filing. After your case is filed, you’ll also need to complete a debtor education course before your debts can be discharged. These aren’t optional—they’re federal requirements built into the bankruptcy process.
The means test can feel intimidating, especially when you’re trying to figure out deductions, household size, and which expenses count. That’s where we become essential. We walk through your income, your expenses, and your financial situation to determine not just whether you qualify, but whether Chapter 7 is actually your best move. Sometimes people who qualify for Chapter 7 are better served by Chapter 13, especially if they’re trying to save a home from foreclosure or catch up on car payments.
Exemptions also play a huge role in Chapter 7. New York offers both state and federal bankruptcy exemptions that protect certain property from liquidation. Your home equity, vehicle, retirement accounts, household goods, and personal belongings can often be protected. Most Chapter 7 filers in Brooklyn walk away with everything they own because exemptions cover it. But if you have significant non-exempt equity—say, in a second property or valuable collections—the trustee can sell those assets. We help you understand exactly what’s at risk before you file.
What Debts Does Chapter 7 Discharge?
Chapter 7 eliminates most unsecured debts. Credit card balances, medical bills, personal loans, past-due utility bills, and old cell phone bills all qualify for discharge. Once the court grants your discharge, creditors can’t legally collect on those debts anymore. They can’t call you, sue you, or garnish your wages.
But not everything gets wiped out. Child support and alimony obligations survive bankruptcy. Most tax debts stay with you, though some older tax debt can be discharged under specific conditions. Student loans are notoriously difficult to discharge, though recent guidance has made it slightly easier in hardship cases. Any debts you incurred through fraud or intentional harm also remain your responsibility.
Secured debts—like your mortgage or car loan—are treated differently. Chapter 7 doesn’t erase the lien on your property. If you want to keep your house or car, you’ll need to keep making payments. If you’re behind and can’t catch up, the lender can repossess or foreclose even after bankruptcy. That’s one reason why people behind on secured debts often choose Chapter 13 instead—it gives them time to catch up while staying protected.
Chapter 7 also doesn’t help if your main problem is falling behind on a mortgage or car payment. It stops collection activity temporarily, but it doesn’t give you a way to make up missed payments over time. If keeping your home is the priority, Chapter 13 offers tools Chapter 7 simply doesn’t have. That distinction matters when you’re deciding which filing actually solves your problem.
The discharge itself is powerful. It’s a federal court order that permanently bans creditors from attempting collection. Violating a discharge order can result in serious penalties for creditors, which is why most stop contact immediately. For someone drowning in unsecured debt with no realistic way to pay it back, Chapter 7 offers a true reset. But it’s not a cure-all, and understanding what it doesn’t cover is just as important as knowing what it does.
What Is Chapter 13 Bankruptcy?
Chapter 13 works differently. Instead of liquidating assets, you propose a repayment plan that lasts three to five years. You make monthly payments to a bankruptcy trustee, who distributes the money to your creditors according to the court-approved plan. At the end of the plan, remaining eligible unsecured debts are discharged.
Chapter 13 is often called reorganization bankruptcy because it restructures your debts into something manageable. You keep your property—your house, your car, everything—as long as you stick to the payment schedule. That’s the trade-off: you don’t lose assets, but you commit to years of payments.
This option makes sense when you have regular income and you’re trying to save your home from foreclosure or catch up on car payments. It also works for people who don’t qualify for Chapter 7 because their income is too high. Chapter 13 gives you breathing room to get current on secured debts while dealing with unsecured debts through the plan.
Chapter 13 Eligibility and Repayment Plans
To file Chapter 13, you need regular income—enough to cover your living expenses and make monthly plan payments. There’s no means test like Chapter 7, but there are debt limits. Your unsecured debts must be below a certain threshold, and your secured debts must fall below another limit. These limits adjust periodically, so working with us ensures you’re looking at current numbers.
Your repayment plan is based on your disposable income—what’s left after you pay for necessary living expenses. The court uses standardized expense guidelines for some categories, but also considers your actual situation. Priority debts like taxes and child support must be paid in full through the plan. Secured debts like your mortgage and car loan get special treatment, often allowing you to catch up on arrears over the life of the plan while staying current on ongoing payments.
Unsecured creditors get whatever disposable income remains. In many cases, unsecured creditors receive only a small percentage of what you owe—sometimes pennies on the dollar. The key is that you’re making a good-faith effort to repay what you can afford, and the court oversees the process to make sure it’s fair.
The length of your plan depends on your income. If your income is below the state median, your plan can be three years. If it’s above, you’re generally looking at five years. That’s a long commitment, and life happens. Job loss, medical emergencies, divorce—any of these can derail a Chapter 13 plan. If you can’t keep up with payments, your case could be dismissed, or you might convert to Chapter 7 if you qualify.
Chapter 13 also protects co-signers during your case. If someone co-signed a loan with you, creditors can’t go after them while you’re in an active Chapter 13 plan. That protection disappears in Chapter 7, which is another reason some people choose Chapter 13 even when they qualify for Chapter 7.
Calculating a Chapter 13 plan is complex. We prepare detailed schedules showing your income, expenses, assets, and debts. The trustee and creditors review your plan and can object if they think you’re not proposing to pay enough. We negotiate and adjust the plan until it gets approved. Once confirmed by the court, you’re locked into those payments. Miss too many, and you risk dismissal.
How Chapter 13 Protects Your Home and Car
The biggest advantage of Chapter 13 is stopping foreclosure and repossession while giving you time to catch up. When you file, the automatic stay kicks in immediately, halting foreclosure proceedings. Your repayment plan includes a provision to cure your mortgage arrears over three to five years while you stay current on ongoing payments. As long as you make your plan payments and keep up with new mortgage payments, your home is protected.
This is something Chapter 7 simply can’t do. Chapter 7 stops foreclosure temporarily, but it doesn’t give you a mechanism to make up missed payments. If you’re three months behind on your mortgage, Chapter 7 wipes out your other debts but leaves you still three months behind. Chapter 13 spreads those missed payments over years, making them manageable.
The same applies to car loans. If your vehicle is essential for getting to work and you’ve fallen behind, Chapter 13 lets you catch up over time. In some cases, you can even reduce the principal balance on your car loan through something called a cramdown—but only if you’ve owned the car for more than 910 days. This can significantly lower your monthly payment and the total amount you owe.
Chapter 13 also allows lien stripping in certain situations. If you have a second mortgage or home equity line of credit that’s completely unsecured—meaning your home’s value doesn’t cover the first mortgage—you might be able to strip that lien entirely. Once you complete your Chapter 13 plan, that second mortgage disappears. This tool doesn’t exist in Chapter 7.
But here’s the reality: Chapter 13 requires discipline. You’re committing to three to five years of payments. During that time, you can’t take on new debt without court approval. You’ll file annual tax returns with the trustee. Any tax refunds you receive may go to creditors. If your income increases significantly, your plan payment might increase too.
Many people start Chapter 13 with good intentions but struggle to finish. Unexpected expenses, job changes, or simply the grind of years of tight budgeting can make completion difficult. If you’re considering Chapter 13, you need to be realistic about your ability to sustain payments for the long haul. We help you stress-test your budget and build a plan that’s actually achievable, not just one that looks good on paper.
How We Help You Choose
The decision between Chapter 7 and Chapter 13 isn’t about which one sounds better. It’s about which one actually solves your problem without creating new ones. We look at your income, your debts, what you own, and what you’re trying to protect. We run the means test. We identify exemptions. We explain what you’ll lose, what you’ll keep, and what happens if your circumstances change mid-case.
We also handle the paperwork, which is more complicated than it looks. Bankruptcy forms are detailed and unforgiving. Small errors can delay your case or get it dismissed entirely. We make sure everything is filed correctly, on time, and in compliance with the Eastern District of New York’s local rules. We represent you at the meeting of creditors and handle any objections from the trustee or creditors.
Most importantly, we help you see the bigger picture. Sometimes the right answer isn’t the one you expected. Maybe you thought you needed Chapter 7, but Chapter 13 saves your house. Maybe you assumed Chapter 13 was required, but you actually qualify for Chapter 7 and can be debt-free in four months instead of five years. That guidance is what turns a confusing, high-stakes decision into a clear path forward. If you’re dealing with overwhelming debt in Brooklyn and need help figuring out your options, we can walk you through the process and help you make the choice that actually fits your life.