Part 3

When contemplating bankruptcy, you’ll likely encounter Chapters 7 and 13 of the U.S. Bankruptcy Code. While both types have the potential to forestall foreclosure, they accomplish this in different ways and have different long-term effects.

Chapter 7 bankruptcy, also known as a “liquidation,” is about discharging your debts. It wipes the slate clean, providing a fresh start. However, Chapter 7 also involves the appointment of a trustee who can sell certain non-exempt assets, potentially including your home, to pay back your creditors.

On the other hand, Chapter 13 bankruptcy, also known as a “reorganization,” does not liquidate your assets. Instead, it restructures your debts into a manageable payment plan, typically lasting three to five years. Under Chapter 13, you can keep your home and make up the missed payments over the life of the bankruptcy plan, provided you make all required payments.