How is Chapter 7 bankruptcy different from Chapter 13?

In chapter 7 bankruptcy, the debtor gives up non-exempt assets in exchange for a discharge of debts. Non-exempt assets are not protected from creditors. Most of what one owns is protected from our creditors: our home, a car to drive, tools of the trade, household goods, food, medicine, etc. On the other hand, typical non-exempt items include cash (whether in the bank, in your pocket or under the mattress), 25% of wages or monies for services owed, and 100% of any tax refunds, all measured on the day the case is filed. All debt is discharged in a chapter 7 bankruptcy, except tax debt, student loan debt, debt arising out of divorce, debt incurred through fraud, and debt arising out of criminal cases. Most cases are completed within 4 to 6 months after filing.

Chapter 13 bankruptcy is required if the debtor has disposable income, i.e. more income than reasonable living expenses. If the debtor has disposable income and is required to file chapter 13, a plan will be ordered that provides for payment of disposable income to the trustee every month for five years. Chapter 13 may also be a desirable option for the debtor in order to: save a home from foreclosure; discharge certain divorce related obligations (not child or spousal support obligations); or remove a second mortgage from a home. Upon successful completion of a chapter 13 plan, all remaining debt is discharged, except student loan debt, debt incurred through fraud, and debt arising out of criminal cases.