What is the difference between Chapter 13 and Chapter 7 bankruptcy?

Chapter 13 and Chapter 7 bankruptcy are two distinct forms of bankruptcy under the U.S. Bankruptcy Code. The main difference between the two lies in how debts are managed. Chapter 13 bankruptcy involves creating a repayment plan, allowing individuals with a regular income to pay off their debts over a period of three to five years. This plan must be approved by the bankruptcy court. On the other hand, Chapter 7 bankruptcy is a liquidation bankruptcy, where non-exempt assets are sold to repay creditors. It is typically quicker, taking around three to six months to complete, and provides a fresh start by discharging most debts. However, not everyone can qualify for Chapter 7, as it involves passing a means test to determine eligibility based on income and expenses. In summary, while Chapter 13 involves a repayment plan, Chapter 7 is a liquidation process.