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When debt becomes overwhelming, bankruptcy can feel like the end of the road. For many people in North Dakota and Minnesota, it is the beginning of genuine financial recovery. But one of the first and most important questions anyone considering bankruptcy needs to answer is which type of bankruptcy is right for their situation and the two most common options, Chapter 7 and Chapter 13, work in fundamentally different ways.
Chapter 7 and Chapter 11 mean a lot of different things. Understanding their requirements will help you consider your options. This guide clearly presents the two options, so you can consider your situation.
What Is Bankruptcy and What Does It Actually Do?
Bankruptcy is a federal legal process that allows individuals and businesses to address debts they are unable to pay. It is governed by federal law and handled in federal bankruptcy court, though certain exemptions and protections are determined by the state in which you file.
As soon as you file for bankruptcy, an automatic stay is put into place. The automatic stay means that almost all activity from the creditors to collect your debts stops. Creditors are not allowed to call or sue you. They are not allowed to garnish your wages. They are also not allowed to take your car or start foreclosure on your house.
Beyond the immediate relief of the automatic stay, the two most common types of personal bankruptcy Chapter 7 and Chapter 13 each take a fundamentally different approach to resolving debt.
Chapter 7 Bankruptcy the Fresh Start Option
Chapter 7 is referred to as a ‘fresh start’ bankruptcy, and for good reason. It is designed to give people who are genuinely unable to repay their debts a clean slate by discharging legally eliminating most or all their unsecured debt in a relatively short period of time.
How Chapter 7 Works
In a Chapter 7 case, a court-appointed trustee reviews your assets and finances. Non-exempt assets property that is not protected under applicable bankruptcy exemptions can be liquidated and the proceeds distributed to creditors. In exchange, most of your remaining unsecured debt is discharged at the conclusion of the case.
The entire Chapter 7 process typically takes three to six months from filing to discharge significantly faster than Chapter 13 and one of the reasons many people prefer it when they qualify.
What Debts Does Chapter 7 Discharge?
Chapter 7 bankruptcy helps you get a fresh financial start. Common debts that can be cleared include credit card debt, medical expenses, personal loans, and utility debt. Unfortunately, resolving Chapter 7 bankruptcy does not discharge every debt. For example, most student loans, tax obligations, child support, alimony, and debt caused by malfeasance and other crimes will not be discharged.
The Means Test Who Qualifies for Chapter 7?
Filing for Chapter 7 isn’t an option for everyone. Only those who pass the “means test” can file. This test takes your average monthly income and compares it against the median income of similar sized households in your state.
If your income is below the North Dakota median, you generally qualify for Chapter 7 automatically. If your income is above the median, a more detailed calculation is performed to determine whether you have enough disposable income after allowable expenses to fund a Chapter 13 repayment plan. If the means test determines you have sufficient disposable income, you may be required to file Chapter 13 instead.
North Dakota Exemptions in Chapter 7
Exemptions are the protections that determine which of your assets are shielded from the trustee in a Chapter 7 case. North Dakota has its own set of bankruptcy exemptions that protect certain property including a homestead exemption for equity in your primary residence, exemptions for a vehicle up to a certain value, retirement accounts, and other essential property.
Understanding which exemptions apply to your situation is one of the most important reasons to work with an experienced bankruptcy attorney before filing. Proper use of exemptions can mean the difference between keeping property you need and losing it to the liquidation process.
Chapter 13 Bankruptcy the Reorganization Option
Chapter 13 takes a fundamentally different approach from Chapter 7. Rather than liquidating assets to discharge debt, Chapter 13 allows you to keep your property and repay some or all of your debt over a structured three-to-five-year repayment plan approved by the bankruptcy court.
How Chapter 13 Works
In a Chapter 13 case, you propose a repayment plan to the court that outlines how you will repay your debts over the plan period typically three years for filers below the median income and five years for those above it. The plan must be approved by the bankruptcy court and must meet certain legal requirements, including paying secured creditors what they are owed on property you want to keep and devoting your disposable income to repaying unsecured creditors.
Once your plan is approved and you complete all required payments, remaining eligible unsecured debt is discharged at the conclusion of the case.
What Makes Chapter 13 Different from Chapter 7
The most important distinction is that Chapter 13 allows you to catch up on secured debts like mortgage arrears or car loan payments over the life of the plan, while keeping the property. This makes Chapter 13 the preferred option for people who are behind on their mortgage and facing foreclosure, or who are at risk of losing a vehicle they need for work or family obligations.
Chapter 13 also provides broader discharge at the end of the case than Chapter 7 in certain circumstances including the ability to discharge some debts that Chapter 7 cannot, such as certain tax obligations that meet specific criteria.
Who Benefits Most from Chapter 13?
Chapter 13 is particularly well-suited for people who have regular income, have assets they want to protect that exceed available exemptions, are behind on a mortgage or car loan and want to keep the property, have debts that are not dischargeable in Chapter 7 but can be managed through a repayment plan, or filed a previous Chapter 7 case within the last eight years and are not eligible to file Chapter 7 again.
The trade-off is that Chapter 13 requires a commitment to a multi-year repayment plan and the discipline to make consistent plan payments throughout that period. Cases that are dismissed because a filer cannot maintain plan payments provide far less relief than a successfully completed case.
Chapter 7 vs Chapter 13 Side by Side
Timeline
Chapter 7 is typically resolved in three to six months. Chapter 13 takes three to five years to complete the repayment plan.
Asset Protection
Chapter 7 may require liquidation of non-exempt assets. Chapter 13 allows you to keep all property if the plan meets legal requirements.
Income Requirements
Chapter 7 requires passing the means test. Chapter 13 requires sufficient regular income to fund a repayment plan.
Mortgage and Car Loan Arrears
Chapter 7 does not provide a mechanism to catch up on secured loan arrears you must either keep current or surrender the property. Chapter 13 allows you to cure mortgage and car loan arrears over the life of the plan and keep the property.
Impact on Co-Signers
Chapter 7 does not protect co-signers creditors can still pursue them for the debt after your discharge. Chapter 13 has a co-debtor stay that protects co-signers on consumer debts from collection activity during the plan.
Frequency of Filing
You cannot file Chapter 7 again for eight years after a previous Chapter 7 discharge. You cannot file Chapter 13 again for two years after a previous Chapter 13 discharge. Different waiting periods apply when mixing chapters.
How Bankruptcy Affects Your Credit Score
This is one of the most common concerns people have when considering bankruptcy and one of the most misunderstood. For a deeper look at exactly how filing affects your credit and what the recovery timeline looks like, visit our guide on Bankruptcy Credit Score Impact.
The straightforward answer is that bankruptcy does affect your credit score, and the impact is real. A Chapter 7 bankruptcy remains on your credit report for ten years from the filing date. A Chapter 13 bankruptcy remains on your credit report for seven years.
However, for most people whose credit is already significantly damaged by missed payments, collections, and charge-offs, the practical impact of the bankruptcy filing on their credit score is often much smaller than they expect because the damage was already being done by the unresolved debt.
More importantly, bankruptcy stops the ongoing damage. Once your debts are discharged or in a structured repayment plan, you stop accumulating new derogatory marks. Many filers see meaningful credit improvement within one to two years of their discharge as they begin rebuilding with secured credit cards, small loans, and consistent payment history.
The question is rarely whether bankruptcy affects your credit it does. The more important question is whether the relief it provides outweighs the credit impact given your specific financial situation.
How Bankruptcy Stops Wage Garnishment
One of the most immediate and powerful effects of filing bankruptcy is the automatic stay which stops wage garnishment the moment your case is filed. For people whose paychecks are being garnished by creditors or the court, this is often the most urgent reason to file.
Once the automatic stay is in place, your employer must stop any ongoing garnishment. Creditors cannot restart garnishment proceedings without obtaining permission from the bankruptcy court, which is rarely granted for the debts that most individuals are dealing with.
For a detailed look at how filing bankruptcy addresses active wage garnishments and what happens to wages already garnished before filing, visit our guide on Stop Wage Garnishment.
The Automatic Stay Immediate Protection When You File
Regardless of which chapter you file under, the automatic stay goes into effect the moment your bankruptcy petition is submitted to the court. This is not something that happens after a hearing or after a judge reviews your case it is immediate and automatic.
The automatic stay prohibits creditors from:
- Continuing or initiating any collection calls or written communications
- Filing or continuing lawsuits against you for collection of pre-petition debts
- Garnishing your wages
- Repossessing your vehicle
- Initiating or continuing a foreclosure on your home
- Disconnecting utility services
- Evicting you from a rental property in most circumstances
For people who have been dealing with aggressive creditor harassment, constant collection calls, or the immediate threat of repossession or foreclosure, the automatic stay alone can provide significant and immediate relief.
What Bankruptcy Cannot Do
Understanding the limits of bankruptcy is just as important as understanding its benefits.
Child support and alimony: Bankruptcy does not discharge these obligations. They survive bankruptcy in full and must continue to be paid.
Student loans: Bankruptcy generally does not discharge student loan debt. There is a narrow path an adversary proceeding requiring proof of “undue hardship” under a demanding legal standard but most student loan debt survives bankruptcy.
Recent tax debts: Most recent tax debts are not dischargeable. Older income tax debts may qualify for discharge in Chapter 7 if they meet specific criteria, but recent taxes and certain other tax obligations generally survive.
Fraud or intentional harm: Debts arising from fraud, intentional wrongdoing, or certain criminal conduct can be excepted from discharge if a creditor proves the debt arose that way.
Underlying financial habits: Bankruptcy doesn’t fix the spending, income, or management issues that led to the debt in the first place. It works best as one part of a broader plan to get finances back on track.
Common Misconceptions About Bankruptcy in North Dakota
“I will lose everything if I file.”
This is one of the most widespread fears about bankruptcy and one of the least accurate. North Dakota’s bankruptcy exemptions protect a significant amount of property including equity in your home, a vehicle, retirement accounts, and household goods. Many Chapter 7 filers keep all their property because everything they own falls within applicable exemptions. Chapter 13 filers keep all property as long as they complete their plan.
“Bankruptcy is only for people who are completely broke.”
Bankruptcy is available to people across a wide range of financial situations. Many filers have steady income but are dealing with debt loads that their income cannot realistically service particularly medical debt, which is the leading cause of personal bankruptcy filings nationally.
“Filing bankruptcy means I failed.”
Bankruptcy is a legal tool specifically created by Congress to give individuals and businesses a path back from financial difficulty. Using a legal tool that exists for exactly your situation is not failure it is making an informed decision about your financial future.
“I can never get credit again after bankruptcy.”
This is simply not true. Many bankruptcy filers begin receiving credit card offers within months of their discharge. Rebuilding credit after bankruptcy takes time and discipline, but it is entirely achievable, and many people have stronger credit profiles three to five years after bankruptcy than they had in the years leading up to filing.
Frequently Asked Questions
How do I know whether Chapter 7 or Chapter 13 is right for me?
The right chapter depends on your income, your assets, the types of debt you have, and your financial goals including whether you want to keep a home or vehicle you are behind on. This is a decision best made in consultation with an experienced bankruptcy attorney who can evaluate your complete financial picture.
Can I keep my house if I file bankruptcy in North Dakota?
It depends on your situation and which chapter you file. In Chapter 7, you can keep your home if you are current on your mortgage and your equity falls within North Dakota’s homestead exemption. In Chapter 13, you can keep your home and catch up on mortgage arrears over the plan period, making it the preferred option for people facing foreclosure.
How long does bankruptcy stay on my credit report?
Chapter 7 remains on your credit report for ten years from the filing date. Chapter 13 remains for seven years. However, the practical impact on your ability to obtain credit diminishes significantly over time, and many filers see meaningful credit recovery within two to three years of their discharge.
What is the means test and how does it affect my filing?
The means test is a calculation used to determine whether you qualify for Chapter 7. If your income exceeds the North Dakota median income for your household size, a further calculation determines whether you have disposable income available to fund a Chapter 13 plan. An attorney can run the means test for you and tell you which chapter you qualify for before you file.
Will bankruptcy stop my wage garnishment immediately?
Yes. The automatic stay that goes into effect when you file bankruptcy immediately stops any ongoing wage garnishment. Your employer must stop withholding garnished funds as soon as the stay is in place.
How much does it cost to file bankruptcy in North Dakota?
Bankruptcy involves both courts filing fees and attorney fees. The court filing fee for Chapter 7 is currently $338 and for Chapter 13 is $313. Attorney fees vary depending on the complexity of the case. At Autrey Law Firm, we offer a free consultation to discuss your situation and provide a clear picture of what representation will cost before you make any decisions.
Bankruptcy Is a Legal Tool Not a Life Sentence
The stigma around bankruptcy often keeps people in debt situations far longer than necessary, dealing with creditor harassment, wage garnishment, and financial stress that a straightforward legal process could resolve. Bankruptcy exists because Congress recognized that people and businesses sometimes face financial circumstances beyond their control and that the economy is better served by giving people a realistic path to recovery than by leaving them permanently buried in debt.
For many people in North Dakota and Minnesota, filing bankruptcy is the most responsible financial decision they can make one that allows them to protect their family, stop the haemorrhaging of their finances, and start rebuilding on a solid foundation.
Need Help Deciding Between Chapter 7 and Chapter 13? Contact Autrey Law Firm
At Autrey Law Firm, we have been helping individuals and families in North Dakota and Minnesota navigate bankruptcy for over 30 years. Our experienced bankruptcy attorneys understand the full range of options available to you from Chapter 7 and Chapter 13 to alternatives outside of bankruptcy and we take the time to explain your choices clearly so you can make the best decision for your situation.
We offer a free consultation to every person considering bankruptcy, with no obligation and no pressure. If bankruptcy is the right path forward, we will guide you through every step of the process.
Final Thoughts
Chapter 7 offers a faster fresh start through discharge of most unsecured debt.
Chapter 13 provides a structured repayment path allowing you to catch up on secured debts (like a mortgage or car loan) and keep property while repaying creditors over time.
What both chapters share is the power to stop collection activity immediately, give you breathing room, and provide a legal framework for moving forward. Do not let fear or stigma keep you from exploring options that exist specifically to help people in your situation.
Contact Autrey Law Firm today and let our experienced bankruptcy team help you understand your options and take the first step toward financial recovery.