 TITLE: What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy? CONTENT: How Does Bankruptcy Work?\n-------------------------\nBankruptcy is a method to eliminate or at least reduce your debt when bills pile up beyond your ability to repay them. It should be viewed as a last resort to be considered only when all other potential courses of action to get back on track have been exhausted.\nIndividuals filing for bankruptcy mostly use either Chapter 7 or Chapter 13. The biggest difference between the two is what happens to your property:\n*   **Chapter 7**, which is known as liquidation bankruptcy, involves selling some or all of your property to pay off your debts. This is often the choice if you don't own a home and have a limited income.\n*   **Chapter 13**, also known as a reorganization bankruptcy, gives you the chance to keep your property (including secured assets like your home and car) if you successfully complete a court-mandated repayment plan that lasts between three and five years.\nDepending on where you live and your marital status, some of your property may be exempt from being sold when you file Chapter 7 because of state-specific and federal exemptions. With exemptions, whether they be your home equity, retirement accounts or even personal possessions such as jewelry, you receive the allowed exemption amounts, and the rest of the proceeds will be used to pay off debts. You can read more about potential exemptions, and check out this chart for a quick rundown on the two types:\nChapter 7\nChapter 13\n**Type of bankruptcy**\nLiquidation\nReorganization\n**Who can file?**\nIndividuals and business entities\nIndividuals only (including sole proprietors)\n**Eligibility restrictions**\nDisposable income must be low enough to pass the Chapter 7 means test\nCannot have more than $419,275 of unsecured debt or $1,257,850 of secured debt (as of 2021)\n**How long does it take to receive a discharge?**\nTypically three to five months\nUpon completion of all plan payments (usually three to five years)\n**What happens to property in bankruptcy?**\nTrustee can sell all nonexempt property to pay creditors\nDebtors keep all property but must pay unsecured creditors an amount equal to value of nonexempt assets\n**Allows removing unsecured junior liens from real property through lien stripping?**\nNo\nYes (if requirements are satisfied)\n**Allows reducing the principal loan balance on secured debts through a loan cramdown?**\nNo\nYes (if requirements are satisfied)\n**Benefits**\nAllows debtors to quickly discharge most debts and get a fresh start\nAllows debtors to keep their property and catch up on missed mortgage, car and nondischargeable priority debt payments\n**Drawbacks**\nTrustee can sell nonexempt property; does not provide a way to catch up on missed payments to avoid foreclosure or repossession\nMust make monthly payments to the trustee for three to five years; may have to pay back a portion of general unsecured debts END