What is the difference between Chapter 13 and Chapter 7 bankruptcy?

Chapter 13 and Chapter 7 bankruptcy are two distinct types of bankruptcy afforded under the United States Bankruptcy Code, and each serves different purposes and involves different processes. Chapter 13 bankruptcy, often referred to as a wage earner's plan, is designed for individuals with a regular income who wish to repay their debts over time. In this arrangement, the debtor proposes a repayment plan to make installments to creditors over a three to five-year period. One significant advantage of Chapter 13 is that it allows individuals to keep their assets, such as their home and car, as long as they follow the repayment plan and keep up with their ongoing obligations. Additionally, Chapter 13 may allow the discharge of certain debts after the repayment period is completed, providing a path toward financial recovery. On the other hand, Chapter 7 bankruptcy, commonly known as liquidation bankruptcy, is suited for individuals with limited income who cannot afford to repay their debts. In Chapter 7, a bankruptcy trustee is appointed to oversee the distribution of the debtor's non-exempt assets to creditors. Most unsecured debts, such as credit card debt and medical bills, can be discharged, freeing the debtor from these obligations. However, individuals may lose some of their assets in the process, as not all assets are exempt from liquidation. The choice between Chapter 13 and Chapter 7 depends largely on the individual's financial situation, income level, and asset ownership. While Chapter 13 provides the opportunity to retain assets and repay debts, Chapter 7 allows for quicker debt relief but may involve asset liquidation. Individuals facing these choices should consider exploring the specifics of each option on the current web page for the Chapter 13 Office of North Carolina to gain further insight tailored to their circumstances.