A Chapter 7 – or straight bankruptcy – is a process where all of unsecured debt (credit cards and medical bills) are discharged. In a Chapter 7, you get to exempt or keep equity – your house, your car, your personal property and up to $1,000,000.00 in your 401k or other retirement account.
A Chapter 13 – wage earner’s reorganization – consists of a plan where you pay back your debt over the course of 3 to 5 years. Your plan is carried out under court supervision (the trustee) and your property is protected from your creditors. At the end of the case you receive a discharge from personal liabilities on most debts, other than those that you have reaffirmed – like your home mortgage.