If you’ve made the decision that you want to find relief from debt through bankruptcy, it can be challenging to know what type will most benefit you. Both Chapter 7 and Chapter 13 can help you get your life back on track, but there are critical differences between the two types of bankruptcy filings.

Chapter 7 basics

To pay back your creditors, most of your assets will be liquidated to cover your outstanding debt. There are some personal allowances that you can keep, though, such as clothing, household furnishings and some jewelry.

Once you complete the Chapter 7 bankruptcy process, the court discharges all eligible debt. That can be a huge relief, because there’s nothing more to do; there’s no repayment plan like Chapter 13.

You have several options to keep your car if it is essential for your continued livelihood. If money is still owed on it, you can sign a reaffirmation agreement with the lender which means you will continue to pay and not discharge the debt during bankruptcy. If you owe your car, you can file an exemption for it.

Chapter 13 basics

Instead of completely discharging your debt, you restructure it in a Chapter 13 bankruptcy. This restructuring means that you agree to pay off some or most of you owe. Because you’ll repay this debt, a steady income is necessary when filing for Chapter 13.

The key benefit of filing this way is that you’ll be able to save your personal belongings and home if you make the scheduled payments on time. The repayment plan will generally last between three to five years. After you have finished it, the court discharges any remaining debt listed in the bankruptcy filing.

Choosing the right type of bankruptcy

When it comes to selecting the correct type of bankruptcy filing for you, it depends a lot on your goals and income. If you’d like to save your house and have a regular influx of money, Chapter 13 can be the most beneficial. If you’re unable to make structured repayments and want a faster way to leave debt behind, Chapter 7 could be better for you. Either way, once your debt has reduced or eliminated, you’ll be able to start rebuilding your life.