Chapter 7 vs. Chapter 13 Bankruptcy: Understanding the Key Difference
When overwhelming debt becomes unmanageable, bankruptcy can provide a legal path to a fresh financial start. The two most common forms of personal bankruptcy are Chapter 7 and Chapter 13, and they work in fundamentally different ways. Choosing the right option depends on your income, assets, types of debt, and financial goals. A Las Vegas bankruptcy attorney at Marathon Law Group can help you evaluate both options and make the right decision for your situation.
Chapter 7: Liquidation Bankruptcy
Chapter 7 bankruptcy is often called “liquidation bankruptcy” because a court-appointed trustee may sell non-exempt assets to pay your creditors. In exchange, most of your qualifying unsecured debts — credit cards, medical bills, personal loans, and similar obligations — are discharged, meaning they are legally eliminated. The entire process typically takes three to six months from filing to discharge.
The appeal of Chapter 7 is speed and a complete discharge of qualifying debts. Most Chapter 7 filers have few or no non-exempt assets, meaning the trustee has nothing to liquidate and the case results in a clean discharge with minimal disruption. However, Chapter 7 is not available to everyone — you must qualify by passing the means test.
Chapter 13: Reorganization Bankruptcy
Chapter 13 is known as a reorganization bankruptcy because rather than discharging debts immediately, you propose a three-to-five-year repayment plan that restructures what you owe. At the end of the plan, remaining eligible unsecured debts are discharged. Chapter 13 allows you to catch up on mortgage arrears and keep your home, protect non-exempt assets you would lose in Chapter 7, and address debts that cannot be discharged in Chapter 7, such as certain tax obligations.
Nevada Bankruptcy Law — How Courts Apply It
Bankruptcy cases in Nevada are handled by the United States Bankruptcy Court for the District of Nevada, which has divisions in Las Vegas and Reno. Federal bankruptcy law governs the process, but Nevada state law controls what assets are exempt — meaning what you get to keep through bankruptcy. Nevada’s exemptions are relatively favorable compared to many states.
Under Nevada law (NRS 21.090), significant exemptions include: the homestead exemption protecting up to $605,000 in home equity (one of the most generous in the country), exemptions for retirement accounts including 401(k)s and IRAs, exemptions for most Social Security benefits and pension payments, and vehicle exemptions up to a certain value. Understanding which exemptions apply to your specific assets is critical to evaluating whether Chapter 7 or Chapter 13 better serves your interests.
The means test for Chapter 7 eligibility compares your average monthly income over the six months before filing to Nevada’s median income for a household of your size. If your income is below the median, you generally qualify for Chapter 7. If it is above the median, a more detailed analysis of your allowable expenses determines whether you pass. A bankruptcy attorney can run this analysis for you before you file.
A common misconception is that bankruptcy destroys your credit permanently. In reality, Chapter 7 stays on your credit report for 10 years, and Chapter 13 for 7 years — but many people begin rebuilding credit within 12 to 24 months of their discharge by using secured credit cards and other tools responsibly.
Practical Examples — Which Chapter Is Right for You?
Consider a Las Vegas resident with $60,000 in credit card and medical debt, a modest income below Nevada’s median, a car worth $8,000, and no home equity. This person would likely pass the Chapter 7 means test, have no non-exempt assets for the trustee to liquidate, and emerge from bankruptcy in four to six months with most of their debt discharged. Chapter 7 would be the clear choice.
Now consider a Las Vegas homeowner with $40,000 in unsecured debt, a household income above the Nevada median, and $80,000 in home equity — but who is six months behind on mortgage payments and facing foreclosure. This person might not qualify for Chapter 7, or if they did, the trustee could potentially reach some of their equity. More importantly, Chapter 7 would not stop a foreclosure that has already begun. Chapter 13 would allow this person to propose a repayment plan that cures the mortgage arrears over 36 to 60 months while keeping the home — making it the better choice despite its longer duration.
What Marathon Law Group Does Differently for Bankruptcy Clients
Marathon Law Group brings 45 years of combined legal experience to bankruptcy matters in Las Vegas and throughout Clark County. We approach bankruptcy as a comprehensive financial planning tool, not just a legal filing. Before recommending a chapter, we analyze your complete financial picture — income, assets, debts, exemptions, and long-term goals — to ensure we recommend the right path.
We handle all aspects of the bankruptcy filing process, from the initial means test analysis through court hearings and discharge. We are familiar with the U.S. Bankruptcy Court for the District of Nevada and its local procedures, including the requirements and preferences of the Las Vegas trustees. Our clients receive direct attorney access throughout the process, not just a paralegal handling their file.
Frequently Asked Questions — Bankruptcy in Las Vegas
Will I lose my car in Chapter 7 bankruptcy? Nevada’s vehicle exemption protects a portion of your car’s value. If your car’s equity (market value minus what you owe) falls within the exemption, you can keep it. If the equity exceeds the exemption, the trustee may sell it to pay creditors, though this is uncommon in most consumer cases.
Can I file bankruptcy if I am self-employed in Las Vegas? Yes. Self-employed individuals can file under both Chapter 7 and Chapter 13, though documenting income and expenses may be more complex. An attorney who understands how self-employment income is treated in the means test is essential.
How soon after Chapter 7 bankruptcy can I buy a home? Most conventional mortgage programs require a two-year waiting period after Chapter 7 discharge. FHA and VA loans may have shorter waiting periods. Beginning to rebuild credit immediately after discharge can put you in the strongest possible position when the waiting period ends.
Free Bankruptcy Consultation in Las Vegas
If you are struggling with debt and considering bankruptcy, contact Marathon Law Group for a free, no-obligation consultation. Call (702) 522-1808 or contact us online. We serve clients in Las Vegas, Henderson, North Las Vegas, Summerlin, and all of Clark County. We also handle personal injury and family law matters. Se habla español.