Deciding to file for bankruptcy is no easy decision. How will it impact the future of your financial stability? Will it wipe out all or just some of your debt? Will you lose property like a home or car? What are the different types of bankruptcies and what do they do? These are the kind of questions that will cause you to lose sleep if you’re considering filing for bankruptcy. Unfortunately, the answers to these questions can vary depending on what type of bankruptcy you file. Therefore, it’s important to understand the different types of bankruptcies, so you will know which is right for you. This blog will examine the difference between Chapter 7 and Chapter 13 bankruptcies.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is designed to wipe out almost every kind of debt and allows you to get on with your life. It is the fastest and most straightforward type of bankruptcy, making it a popular choice for many Americans. Filing Chapter 7 bankruptcy generally works best if you are burdened with a lot of unsecured debt, like credit cards, medical bills, and personal loans. In most cases, you can keep your assets, like your car, home, and other valuables, when you file. The Court appoints a Chapter 7 Trustee to review your case and this is the person we meet with when we go to court.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows an individual to repay some or all of their debts, depending on individual circumstances, through a payment plan approved by the Bankruptcy Court. Instead of paying all of their creditors directly, the debtor pays a certain amount every month to the Chapter 13 Trustee and this Trustee distributes the money to the creditors, as provided in the Chapter 13 plan. When the last payment is made, the debtor is no longer liable for the remainder of their dischargeable debts. Most Chapter 13 plans only pay a few pennies on the dollar to the unsecured creditors (credit cards, medical bills, utility bills, etc.), yet upon successful completion, you have completely walked away from those bills as well. A Chapter 13 bankruptcy plan generally lasts between three and five years, depending on the amount of the debt, the ability to pay, and the specifics of the Chapter 13 plan and is the preferred choice for people behind on house or car payments, people with income taxes or property taxes owed, or with assets they own and want to make 100% sure they keep in a bankruptcy case.
These are the two most common types of bankruptcies for individuals. If you’d like to learn more about them or would like to talk to a bankruptcy attorney, contact us today.