We get this frequently asked question in regards to bankruptcy, so we wanted to address it in this post.
Chapter 7 bankruptcy is commonly called “straight” bankruptcy or just “bankruptcy”.
In a Chapter 7 bankruptcy, the objective is to cancel or discharge all of your unsecured debt and thereby give a fresh start to a struggling debtor. In a Chapter 7 bankruptcy, a debtor must turn over any nonexempt property, if such exists, to the Trustee, who then liquidates the property for cash and uses the cash to pay the debtor’s creditors. Once such is completed the debtor receives a discharge of the remainder of his/her unsecured debt.
A Chapter 13 bankruptcy is commonly call a “reorganization”. In this type of bankruptcy, a debtor attempts to repay his creditor some portion of what they may be owed over an extended period of time. Chapter 13 bankruptcy allows for the protection of certain assets and requires a steady income on which to base a repayment plan. Upon completion of the plan a debtor who has filed a Chapter 13 bankruptcy receives a discharge (similar to that in a Chapter 7 bankruptcy) of any remaining unpaid debts, not fully paid through the Chapter 13 repayment plan.
Want to learn more? Check out our Bankruptcy FAQ’s Page.