How do Chapter 13 and Chapter 7 Bankruptcies differ?

 There are several different types of bankruptcies, but most individuals will either file for a chapter 7 or a chapter 13 bankruptcy. While there are a lot of legal distinctions between the two they both act in the same way to eliminate an individuals debt to allow them to start over.
 
 A chapter 7 bankruptcy is a discharge of your debt. A chapter 13 bankruptcy is a partial repayment for debt for regular income earners. Under a chapter 13 plan you propose a repayment plan that allows you to make installment payments on your debt for 3-5 years.

Protection-
 Chapter 7 and 13 bankruptcies will both typically protect your home, vehicle, personal property such as household goods and retirement accounts such as 401Ks and IRAs. Within some federally mandated limits you will not be forced to relinquish these assets in either bankruptcy action.

 Under a chapter 13 bankruptcy you can also keep assets for which you are currently behind on the payments. For example, under a chapter 13 repayment plan you can catch up on your missed mortgage or car payments and still retain the asset. Under a chapter 7 bankruptcy you must be current on your payments to keep the property attached to that debt.

Debt-
 Whether you are filing a chapter 7 or a chapter 13 bankruptcy, the goal is to eliminate the sufficient weight of debt. Debt typically falls into two categories secured and unsecured. Secured debt is debt that is attached to an object such as a home or vehicle. Unsecured debt is typically not attached to any tangible objects such as credit card debt. When filing either chapter of bankruptcy most unsecured debt can be eliminated. Secured debt can typically only be eliminated if you surrender the property it is attached to.

 Where the two chapters differ is what other debts can be eliminated or kept.

 A chapter 13 bankruptcy will also allow you to remove a second or third mortgage if the value of the home is currently less than what you owe on the first.  A chapter 7 bankruptcy does not allow you to remove the additional mortgages.

Length-
 The length of the two types of bankruptcies also varies. A chapter 7 typically takes four to six months from start to finish. Under a chapter 13 you are not discharged until your final payment in three to five years.

Renegotiation-
 In some situations, you can cram down or renegotiate your loans in a chapter 13 bankruptcy. This is important for individuals who are trying to modify their home or car loans.  In a chapter 13 bankruptcy you work with the trustee and creditor to try to modify these loans to be more affordable. 

There are advantages and disadvantages to both types of bankruptcy. Filing a bankruptcy action is an important decision with financial and legal ramifications. It is important to consult with an attorney before you file to determine whether or not filing a bankruptcy is right for you. This information is provided for informational purposes only. It is not legal advice and does not constitute an attorney client relationship.