When a debtor is contemplating bankruptcy, they will either file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, with some exceptions, the debtor’s assets are liquidated, and the proceeds are used to pay of their debts. The process usually can be finished within a matter of months. In a Chapter 13 bankruptcy, the debtor may retain more assets, but will have to follow a court-ordered repayment plan that could last three to five years.

However, choosing between Chapter 7 bankruptcy and Chapter 13 bankruptcy often boils down to the debtor’s income. If a person’s income is under a certain level they may qualify for Chapter 7. If their income is above that threshold, only Chapter 13 may be available to them. The following are some differences between these two types of bankruptcies.

Two major sources of debt many people have are a mortgage and car loans. In a Chapter 7 bankruptcy, these assets may have to be forfeited to the creditor, unless the debtor can pay the wholesale value of the asset. In a Chapter 13 bankruptcy, as long as the debtor follows the repayment plan, they may be able to retain these assets.

Debtors may also have other valuable assets. In a Chapter 7 bankruptcy, unless these assets are exempt, they will have to be forfeited unless the debtor can pay the fair market value of the asset, or switch that asset with an exempt asset of equal value (with the trustee’s approval). In a Chapter 13 bankruptcy, debtors can retain their nonexempt assets.

Some debtors may be in a situation where they have a secured asset they want to keep. In a Chapter 7 bankruptcy, a debtor may be able to do this, but only if they pay the wholesale value of the asset all at once. In a Chapter 13 bankruptcy, the debtor can pay the asset’s replacement value (plus interest) as part of their bankruptcy repayment plan.

These are only a few differences between Chapter 7 and Chapter 13 bankruptcy. In the end, what is important to take away is that while Chapter 7 bankruptcy is quicker, Chapter 13 bankruptcy may allow the debtor to retain more assets. Moreover, depending on one’s income, one may not qualify for Chapter 7, making Chapter 13 their only option. Those who want more information on these two types of bankruptcies are encouraged to research the matter further.