Chapter seven is what most people think of is bankruptcy; when you list your debts, credit card debts, medical bills, collections, that type of thing—and you ask the government to forgive them and to erase them from your credit. It does not get rid of most taxes or student loans, but it will get rid of all of your other unsecured debt (things that you owe).
Typically, how you qualify for that is based on your income and on what you own. There are assets that we can protect with what are called exemptions and most people if they meet the income requirements, we try to get you into a chapter seven because it’s a quick and easy process and it gets it done from filing date to discharge dates, it’s 90 days. So you’re in and out pretty quickly.
Chapter 13 is a debt repayment program; it’s where you’re repaying a portion of your debt based on your income. And that’s just a math problem we figure out together to know how much you’re going to repay.
Most of the time you’re not paying unsecured debt, you’re paying that back at zero percent. What you’re paying back is if you’re behind on a house or a car payment, it helps you to pay that back over time, or if you have any taxes that you need to pay back, you can pay those back over time. So it’s a three-to-five-year repayment plan that you pay through the court to a trustee and that trustee pays back your debts in that time period, and then you received your discharge.
Most people file a chapter 13 either because they don’t qualify income-wise for a chapter seven or because they had an asset that they’re trying to protect. So if you’re behind on your house or a car and you want to keep that asset, that’s when a Chapter 13 is really a powerful tool. The main difference is the time period, and whether or not you have to pay back something. Chapter Seven is what most people think of when it comes to filing bankruptcy, but a chapter 13 bankruptcy filing is very useful if you owe a large past due portion on your house, car, or taxes.