Defining Chapter 7 and Chapter 13

While there are many different types of Bankruptcies.  On this site you will most often see references to Chapter 7's and Chapter 13's. 

Chapter 7 Bankruptcy is by far the most common form of individual filing some people refer to it as Liquidation or total Bankruptcy in this site it will be most often referred to as a Chapter 7.   You also see references to Chapter 13 Bankruptcies which are also called repayment or restructuring Bankruptcies. 

These names we use derive from the section of the United States Federal Code specifically 11 USC Chapter 7 and 11 USC Chapter 13.   There are other chapters of bankruptcy but they generally involve complex business restructuring or specific entities like the Chapter 9 which is for cities and states or the Chapter 12 which is for certain farm restructuring programs. 

In simple terms all you really need to know is that a Chapter 7 allows the debtor to eliminate most debts and keep most of their stuff without making any kind of payments to the Trustee.  And that in a Chapter 13 the debtor enters into a plan to repay some part of their debts and after a period of time typically between 36 and 60 months any remaining debt that they have can be discharged. 

Understanding the differences between these chapters is fundamental.  I highly recommend learning as much as you can about these difference before entering into any type of Bankruptcy.   

Simple definitions

Chapter 7:  Most common type of Bankruptcy available for business and for individuals.  In most cases individuals who file this chapter can keep all of their assets and are not required to pay any of their debts, it is for this reason it is sometimes also referred to as “Total Bankruptcy”

Chapter 13: Is a type of Bankruptcy only available to real people (businesses cannot file this type) It is a repayment plan Bankruptcy that last between 3 years and 5 years, with the debtor typically paying monthly or weekly payments.  At the conclusion of the 3-5 year period any remaining debt can be discharged. 

These definitions and many others appear in the glossary at the back of my book, "Should I File: A Definitive Guide to Bankruptcy.  As you read this site it may be helpful to refer to the book's glossary which can help to ensure that you understand the vocabulary used on this site.  This understanding is critical to understanding the Bankruptcy process.  If you have not yet purchased my book it can be bought on Amazon by clicking the link below.