The Difference Between Chapter 7 and Chapter 13 bankruptcy

You’ve lost your job and become so far behind in payments that the only option left for you is bankruptcy. Before you meet with your bankruptcy attorney, be informed.

There are two types of bankruptcy for individuals – Chapter 7 and Chapter 13, which are the chapters in the U.S. Bankruptcy Code under which the explanations of these legal proceedings exist. Both are designed to help you re-organize or forgive your debt.

Chapter 13 is designed for debtors that have some money left over at the end of the month but not enough to pay back their creditors in a timely fashion. This type of bankruptcy allows you to re-organize your debt so that it can be paid back in three to five years.

Although you have to tell your creditors about any assets you have, they won’t be taken away and sold for payment. You’ll have to pay them back the amount of money that could be raised by the sell of your things, though. If you successfully complete the repayment schedule, the remaining unpaid unsecured debt is discharged. Many people use Chapter 13 to either postpone or prevent foreclosure on their home.

Chapter 7 is designed for debtors who can’t pay their creditors back at all.
You possessions are sold off to raise money for your creditors. Some items are exempt, including a portion of the value of your home, your vehicle and other essentials. What items are exempt depends upon the state in which you live.

The proceeds from any sale of your assets are distributed to your creditors as satisfaction of your debts. If there's not enough to repay all they money you owe, the remaining portion is discharged. You’re no longer responsible for repaying it.

However, not all debts may be discharged in either Chapter 13 or Chapter 7 bankruptcy. Tax debts, federally subsidized student loans, alimony, child support payments, debts resulting from fraud, and debts incurred by either willful or malicious injury to others will have to be paid back.