Knowing the Difference Between Chapter 7 and Chapter 13

If you are new to bankruptcy then you’re not alone: many bankruptcy filers know very little to nothing about bankruptcy when they file. That is okay. Your bankruptcy attorney will be able to answer all of your questions but it is still important to go into that first consultation with a basic understanding of bankruptcy and your options within.

Chapter 7 Bankruptcy

Chapter 7 is the most sought after type of bankruptcy because it doesn’t actually require the debtor directly repaying the loans. Instead, a trustee comes in and liquidates all the debtor’s assets which could not be made exempt. The proceeds are used to pay off the creditors and any remaining unpaid debts are discharged depending on what kind of debts they were. If you have very few nonexempt assets and if most of your debts are dischargeable then you could get out of the bankruptcy relatively unscathed.

Chapter 13 Bankruptcy

Because eligibility for Chapter 7 requires the passing of a “means test,” the majority of bankruptcy applicants are funneled into Chapter 13. This type of bankruptcy requires repayment of the debtor’s loans over a three to five year period under a restructured plan. Any unpaid debts at the end of the repayment period are discharged depending on what kind of debts they were.

Beyond Bankruptcy: Debt Consolidation and Debt Management

Bankruptcy should only be utilized as a last resort since it will stay on your record for up to 10 years after filing. Debt consolidation and debt management services exist to help those overcome modest amounts of debt. Talk to a credit counselor about your debts to see if either of these debt solution alternatives are right for you.

If not, talk to a bankruptcy attorney in your area today. Tell he or she about your debts and whether or not bankruptcy is the right decision.

 

Related Links:

Bankruptcy Lawyers - What You Need to Know