What’s the difference between Chapter 7 and Chapter 13?
Chapter 7 is the most common kind of bankruptcy and is also know as “Liquidation”. In a Chapter 7, you are telling the court that you cannot afford to pay any of your debts. Assuming you meet all the requirements, the court will discharge your debts and you get a fresh start. Although it is called “liquidation”, the reality is that very few people lose any property in bankruptcy. Chapter 13 is a kind of payment plan, typically for five years. In a Chapter 13, you are telling the court that you cannot afford to pay the amount your creditors want, but you can afford to pay a portion. The court will then approve a payment plan if it is convinced that you are offering your best effort. At the end of the plan, any unpaid debt is then discharged. Chapter 13 filings are also used to fix defaults in mortgages and modify car payments in certain cases.
