Chapter 7 vs. Chapter 13 Bankruptcy
Bankruptcy is a process in which consumers and businesses can eliminate or repay some or all of their debts under the protection of the federal bankruptcy court. For the most part, bankruptcies can be divided into two types — liquidation and reorganization.
Liquidation Chapter 7 bankruptcy comes under the liquidation category. It’s called liquidation because the bankruptcy trustee may take and sell (“liquidate”) some of your property to pay back some of your debt. However, you may keep property that is protected (also called “exempt”) under state law.
Reorganization In Chapter 13 bankruptcy, you keep all of your property, but must make monthly payments over three to five years to repay all or some of your debt.
Both Chapter 7 and Chapter 13 bankruptcy have many rules — and exceptions to those rules — regarding which debts are covered, who can file, and what property you can and cannot keep. If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter. Your bankruptcy may be reported on your credit report for as long as ten (10) years. It can affect your ability to receive credit in the future.