For many people who are considering filing for bankruptcy, it’s hard to know which type of bankruptcy is the right choice. While your financial situation is dependent upon a lot of different factors, you can probably determine fairly easily whether Chapter 7 or Chapter 13 is right for you.
Other times, it is not so easy to determine which type of bankruptcy is appropriate. A person may believe that they are more likely to qualify for Chapter 13 than Chapter 7, but once they are in a consultation with their attorney, they find out that they actually qualify for Chapter 7. Either way, you’ll find that filing for bankruptcy can be one of the most freeing experiences of your life.
How It Works
Filing for bankruptcy can mean different things for different people. For some people, filing for bankruptcy is the only solution they have because they’re completely broke. For others, bankruptcy isn’t the only way out, but it’s definitely the most sensible option.
When it isn’t the only way out, it is the best option for the fact that a person may be running very close to not being able to pay their bills. They may be struggling to make ends meet each month, despite not being behind on anything or being behind on very few bills. If they are close, one misstep can put them in danger of defaulting on many bills.
With that said, it is important to look at the difference between Chapter 7 and Chapter 13 bankruptcy. Perhaps by the time you have finished reading, you will have an idea of what you may qualify for. If you don’t, your attorney can help you figure it out.
Chapter 7 is a form of liquidation. When filing for this type of bankruptcy, your (non-essential) assets may be sold off in order to pay back creditors as much as possible. Of course, your assets won’t cover all of the debt. So, after what can be sold is sold, your debts are discharged, and you have a fresh start!
However, there are times when an individual may not have any assets at all to be liquidated. Plus, there are exemptions that enable an individual to keep assets that are up to a specific amount in value. For example, you may be able to keep your home if it is valued within the exemption amount. The same applies to vehicles, tools of the trade, jewelry, and other assets. Only if an asset is valued more than the exemption amount will the court-appointed bankruptcy trustee sell that asset to pay off any debts.
Chapter 13 is the restructuring of debt so that some or all of it can be repaid to the creditors. Unlike Chapter 7, you won’t have to liquidate all of your assets. Rather, under this form of bankruptcy, you work through the court system to develop a plan that restructures your debts. This is a great alternative for debtors who have a source of income.
This is also a great alternative for those who have assets that they want to hang on to rather than liquidate them for the repayment of debt. The only time that assets may need to be liquidated after filing Chapter 13 bankruptcy is if the debtor defaults on their payment plan. When that occurs, then the bankruptcy is treated like Chapter 7 and all assets not falling within the exemption amounts can be liquidated to satisfy the remainder of the debt.
How Chapter 7 and Chapter 13 Bankruptcy are Similar
There are ways in which Chapter 7 and Chapter 13 are similar. The first is that the debts are discharged. Chapter 7 is discharged once some of the debt is satisfied by the selling off of assets, if there are assets. Chapter 13 is discharged when the payment plan is completed. The end result is the same and that is that the individual has more financial freedom than they did before they filed. The bankruptcy also remains on a person’s credit report for a period of up to 10 years, but that doesn’t mean that a person is unable to obtain new credit.
Talk to a trusted financial professional today to get more of your questions about Chapter 7 and Chapter 13 answered! Call us at 1-800.DEBT.RELIEF (332.8735) or send us an e-mail to get started today.