This could be the topic of a book, so we’ll stick to the basics. In my opinion, the two biggest differences between chapter 7 and chapter 13 bankruptcy are (1) time and (2) the treatment of assets.

TIME: A typical Chapter 7 bankruptcy usually lasts about three months whereas a chapter 13 plan requires a 3-5 year committment. Both chapters require that in exchange for full disclosure of assets and liabilities, the debtor receives a discharge of all unsecured debts such as medical bills and credit card debt. The Chapter 13 discharge however, is granted only upon completion of a re-payment plan that is filed with the Court (which again can take a few years to finish).

ASSETS: Chapter 7 cases can be fairly straightforward. Your property is evaluated in reference to your state’s exemption laws (To read about exemptions click here). Your non-exempt assets are then subject to liquidation to pay back creditors. A bankruptcy attorney can advise you as to whether you have non-exempt property that could be auctioned in satisfaction of creditor’s claims. While the prospect of having some of your property sold sounds intimidating, many who file for chapter 7 keep all of their property through the process.

The asset analysis in chapter 13 cases isn’t as cut and dry. A chapter 13 case involves restructuring debt based on what you can afford to pay. All of the debtor’s disposable income (income after expenses) must be committed to the plan. If you have very little disposable income, it is possible to pay back creditors at pennies on the dollar. A repayment plan is filed with the Court that can afford an opportunity to cut unsecured debt (credit card debt often being paid out at less than 10%) and potentially modify car and mortgage payments. In addition, those who file for chapter 13 bankruptcy have the option of catching up on past due mortgage or car payments, allowing property that would be subject to foreclosure and repossession to be retained. Unlike Chapter 7, Chapter 13 bankruptcy also allows debtors to keep non-exempt assets that would otherwise be subject to liquidation. The catch is that creditors cannot be put in a worse position by a chapter 13 than they would be in a chapter 7 setting. This requires the debtor to be able to pay out the value of the non-exempt equity in the property over the life of the plan. It is important to understand that chapter 13 does not require that all of your debt be paid back, disposable income and the non-exempt value of certain property must be paid to creditors. If you have very little disposable income and no non-exempt assets, your plan payments will likely be very low.

If you are considering bankruptcy, it is always wise to consult a knowledgable bankruptcy attorney.