What is the difference between a Chapter 7 and Chapter 13 bankruptcy?
The most important key difference between them is that Chapter 13 neither liquidates assets nor moves to a quick completion.
In a Chapter 7 bankruptcy, a bankrupt surrenders all his or her non-exempt property to a trustee who then liquidates the property and distributes the proceeds, so far as they go, to the unsecured creditors. Chapter 7 is normally recommended for a debtor who has few assets and are of little value. Chapter 7 may not be a good route to go for someone who own a house or an expensive automobile because he or she may lose them.
In a Chapter 13, by comparison, the debtor retains possession of his or herassets, but he or she must devote a portion of his or her future income to repaying creditors, generally over three to five years. A Chapter 13 bankruptcy develops a plan approved by the bankruptcy court that allows him or her to catch up on past due balances while staying current on new payments. Typically, a Chapter 13 repayment plan includes 36 to 60 months of payments during which debts are paid according to their priority. Secured creditors, those who have collateral to back the loan, are paid first, and the remaining income goes to paying unsecured creditors, such as credit card companies, based on a hierarchy established in the bankruptcy code.