Chapter 7 is a liquidation of the debtor’s estate. The debtor gives up all of his or her assets – except for ones that he is allowed to keep under an exemption – and in exchange he has all of his debts wiped out except for ones that bankruptcy law still gives the creditors a right to collect upon. Most bankruptcies are “no-asset” meaning that there are no assets available for distribution because everything the debtor owns is exempt. A chapter 13 is a rescheduling of reorganization of the debtor’s debt. The debtor is given a few months of breathing space and then is put on a 3-5 year plan in which he will bring current certain secured debts and other priority debts. All other debts will be partially paid depending upon the debtor’s income and expenses.
Credit: C.A.R. Legal Department