What is the difference between chapter 7 and chapter 13?

Chapter 7: A Brief Overview

Chapter 7 is designed as a liquidation. Under this model, a trustee may sell certain property that you own at the time you file the bankruptcy case. The trustee uses the proceeds of the sale to pay creditors. However, the sale of assets in a typical chapter 7 case is unusual. In most cases, you will not have any assets over and above what the law allows you to keep. Thus, in most chapter 7 cases, you do not have any property that the trustee may sell.

About 90 days after you file chapter 7, most of your debts will be discharged, if yours is the typical case. This means you are no longer liable to pay the debt. Some debts are not discharged, however, and you still must pay them. Examples include past-due child support payments, some taxes and student loans. Debts for which you have pledged collateral for the loan (such as cars, homes and household goods) also do not go away in a bankruptcy.

The bankruptcy case addresses only the debts you list at the time of the bankruptcy case. You must pay debts you incur after filing the bankruptcy case as usual. You may keep money that you earn after filing a chapter 7 bankruptcy case, as well as most other property that you obtain after the filing.

Chapter 13: A Brief Overview

Chapter 13 is very different. If you file under chapter 13, you may keep your property and you agree to pay your debts over time from your current income, pursuant to a court-approved plan. The amount that you will repay to creditors under the plan will vary based on your particular circumstances. The payments made to creditors under the plan must total at least as much as creditors would have received if you filed a case under chapter 7. The payments are made to a trustee, who distributes the payments to the creditors.

The plan lasts either until you pay your debts in full or until the end of a three- to five-year period. You receive a discharge at the completion of the plan.

This was just an overview. More detail is provided throughout this FAQ.

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