What is the difference between chapter 7 and chapter 13?

Chapter 7 bankruptcy discharges all your debts immediately and is best suited for people who do not have much assets. You can have a house and exempt some equity in your house (see exemptions however if your income is over a certain threshold you cannot file for chapter 7 bankruptcy. Chapter 13 is for people who’s income prohibits them from filing a chapter 7 bankruptcy or who have significant assets they want to protect in bankruptcy. In chapter 13 there is a three to five year payment plan. A portion of your debt will be repaid within the three to five years. At the end of that period the remainder of your debt is discharged.

In a chapter 7 bankruptcy a court appointed trustee oversees your case while in a chapter 13 bankruptcy a bankruptcy judge makes the decisions.

Chapter seven bankruptcy takes about four to five months from the filing of your petition to the discharge. In a chapter 13 in addition to the bankruptcy petition you must submit a proposed repayment plan to the court. In the repayment plan different types of debts are treated differently. Some debts are priority debts, such as unpaid income taxes and have to be paid in full within the three to five years. Other debts such as credit card debt will only repaid in part depending on the size of your repayment plan. Unless the trustee or a creditor objects to your repayment plan the judge confirms it within a few weeks. If a creditor or the trustee object to the plan the judge will hold a hearing to assess whether your plan must be altered or not.

Consult with a bankruptcy lawyer to understand which type of bankruptcy will be suited for your situation.