Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy proceeding, the debtor could be an individual, a corporation, a partnership, or some other business entity that owes money. In a Chapter 7 bankruptcy case, the court appoints a bankruptcy trustee to handle the matter. The bankruptcy trustee then gathers and sells all of the various assets that the debtor owns and which are not exempt from bankruptcy. Finally, the trustee uses the sale proceeds to pay off the creditors who are owed money. Likewise, under chapter 7, debtors are allowed to keep certain exempt property in their possession. The trustee will then liquidate the rest of the debtor’s non-exempt property.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy allows individuals who receive regular paychecks – or have some other regular source of income – to devise a plan to pay back some or all of their outstanding debts. Pursuant to Chapter 13 of the federal Bankruptcy Code, a debtor can propose a plan of installment payments that last over a period ranging from 3 to 5 years. A Chapter 13 repayment plan cannot, under any circumstances, be longer than five years. While the repayment plan is in effect, creditors cannot begin or continue any collection efforts.