Chapter 7 and Chapter 13 bankruptcy differ significantly from one another in several major aspects. The main difference, however, is that with Chapter 7 bankruptcy, most of your debts are being discharged by the court – you will no longer owe your creditors anything.
With Chapter 13 bankruptcy, on the other hand, you are restructuring rather than discharging your debts. Rather than eliminating your debts, a Chapter 13 bankruptcy sets up a new payment plan under which you pay back all or some of your debts over a designated time period.
Depending on your state’s laws regarding exemptions, you may lose some of your property with a Chapter 7 bankruptcy filing. You do not have to give up any of your property when you file bankruptcy under Chapter 13.
A third major difference between the two types of bankruptcy is the length of time it takes before the slate is “wiped clean,” so to speak. With Chapter 7 bankruptcy, the entire process is complete within approximately 4 months. Because Chapter 13 involves a repayment plan, it takes anywhere from 3 to 5 years to complete.
Both types of bankruptcy have their advantages and disadvantages. A qualified and experienced bankruptcy lawyer can help you understand these differences and advise you on whether bankruptcy is the right decision for your financial circumstances.