Chapter 7 is known as "liquidation bankruptcy." Chapter 7 is generally used by individuals who have an income that is below the median income for their state, and have minimal, if any, assets. Under Chapter 7, burdensome debt can be erased usually within 3 months and the debtor can keep his assets if they are below the amount allowed in his/her jurisdiction (called exemptions). If an individual files for Chapter 7 with assets above those allowed, the bankruptcy trustee will liquidate those additional assets to pay off as much of the debt as possible before discharging the balance.
In a Chapter 7 case, you file several forms with the bankruptcy court listing income and expenses, assets, debts and property transactions for the past year. A court-appointed individual, the bankruptcy trustee, is assigned to oversee your case. About a month after filing, you must attend a First Meeting of Creditors where the trustee reviews your forms and asks questions. Despite the name, creditors rarely attend. If you have any non-exempt property, the trustee will ask that you turn it over to him or her. The meeting normally lasts only a few minutes. If there are no challenges from creditors, approximately three months later, you receive a discharge order, which is a notice from the court that "all debts that qualified for discharge were discharged." Then your case is over.
Chapter 13 is known as "reorganization bankruptcy." Chapter 13 is generally used by individuals who have a regular source of income above the income amount allowed under Chapter 7 and assets above the amount allowed under Chapter 7, but are still unable to pay their bills on a timely basis. A chapter 13 bankruptcy allows such an individual to repay all or most of his/her total debts on an extended schedule (3-5 years). Generally, the debts that are not paid off during that period are discharged at the end of the 5 years if payments are kept up during the plan.
Under a Chapter 13 bankruptcy, you file most of the same forms as you file in chapter 7, plus a proposed repayment plan, in which you describe how you intend to repay your debts over the next three to five years. Some debts must be repaid in full; others you pay only a percentage; others aren't paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end. A bankruptcy trustee is assigned to oversee the case and handle your payments. You will attend the First Meeting of Creditors about four to five weeks after you file. If the trustee is satisfied with your payment plan, he or she will recommend its approval by the judge. A few weeks after the First Meeting of Creditors, the judge normally confirms (approves) your plan if no creditor opposes it and the trustee has recommended it.
When a creditor or the trustee objects to a plan, the judge usually holds a hearing within a few months to determine whether your plan should be approved over the objection. It is also possible for you to resolve the objection before the judge's hearing by amending the plan to satisfy the objection. If your plan is confirmed, and you make all the payments called for under your plan, you will receive a discharge of any balance owed on all dischargeable debts at the end of your case.