What are the differences between Chapter 7 and 13 Bankruptcy?
A Chapter 7 bankruptcy is a liquidation bankruptcy, and is by far the most common form of bankruptcy chosen by consumers. You agree to allow a bankruptcy trustee to liquidate your non-exempt assets in exchange for a discharge of your debts. For most consumers, all of their assets will be exempt from liquidation. The process takes 3-4 months to complete. For more information on Chapter 7, see Chapter 7 bankruptcy.
In Chapter 13 bankruptcy, your assets are not liquidated. Instead, you file a repayment plan with the bankruptcy court to pay back all or a portion of your debts through monthly payments made over a three to five-year time period. The amount you'll have to repay depends on how much you earn, the amount and types of debt you owe, and how much property you own. After you complete your repayment plan, most of the debt remaining will be discharged by the court. For more information about Chapter 13, see Chapter 13 bankruptcy.
You lose no property in Chapter 13 bankruptcy, because you fund your repayment plan through your future income. In Chapter 7 bankruptcy, you select property you are eligible to keep from a list of state exemptions. States typically allow you to keep these types of property in a Chapter 7 bankruptcy:
In Chapter 13 bankruptcy, your assets are not liquidated. Instead, you file a repayment plan with the bankruptcy court to pay back all or a portion of your debts through monthly payments made over a three to five-year time period. The amount you'll have to repay depends on how much you earn, the amount and types of debt you owe, and how much property you own. After you complete your repayment plan, most of the debt remaining will be discharged by the court. For more information about Chapter 13, see Chapter 13 bankruptcy.
You lose no property in Chapter 13 bankruptcy, because you fund your repayment plan through your future income. In Chapter 7 bankruptcy, you select property you are eligible to keep from a list of state exemptions. States typically allow you to keep these types of property in a Chapter 7 bankruptcy:
- Equity in your home, called a homestead exemption.
- Insurance. You usually get to keep the cash value of your policies.
- Retirement plans. Most retirement benefits are protected in bankruptcy.
- Personal property. You'll be able to keep most household goods, furniture, furnishings, clothing (other than furs), appliances, books and musical instruments. You may be able to keep jewelry, but only up to a specified amount.
- Public benefits. All public benefits, such as welfare, Social Security, and unemployment insurance, are fully protected.
- Tools used on your job. You'll probably be able to keep up to a few thousand dollars worth of the tools used in your trade or profession.
- Automobile. Equity in an automobile is protected to a specified amount.
- Wildcard. California’s exemptions provide a “wildcard” exemption which can be applied against any asset.