When it comes to the matter of money, most people have experienced financial setbacks at one time or another. Fortunately for some people, coming up with a plan helps them dig themselves out of debt. Unfortunately, in some situations, there isn't any plan that will effectively help rid them of their crushing debt. For many individuals in debt, contacting a bankruptcy law firm is the last resource to help get out from all their heavy financial burdens. When dealing with debt, there are a few different options when it comes to bankruptcies; however, the two main types are chapter 7 and chapter 13. Both allow debtors to eliminate most, if not all of their debts. If you aren't sure which option is the best for your needs, here are the differences between chapter 7 and 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as a liquidation bankruptcy, which means when you file for chapter 7, your assets will be reviewed for possible liquidation in order to pay off your debts. There will be a trustee appointed by the bankruptcy court to review your assets. Only certain personal items you own can be liquidated for the debts. Items such as a second house, extra vehicles, and family heirlooms may be sold. Items that can't be liquidated include your current residence, clothing, household items such as furniture, and pensions.
Once your assets have been sold, the money will be put toward the existing debts and the remainder of the eligible debts will be discharged. Chapter 7 bankruptcy is an ideal solution if you do not have a foreseeable way out of your debt. When you file chapter 7, an order known as an automatic stay will immediately stop most creditors from pursuing their collection efforts. It is important to keep in mind that your credit rating will generally be negatively impacted for ten years, but you will have eliminated your debt, so you can start anew.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is different from chapter 7 in that you can eliminate and have debts discharged after your assets are liquidated. Chapter 13 allows you to have your debts restructured in a way that is more reasonable for you to repay them; you will have to submit a plan for repayment to the court. Most repayment plans typically last for 3–5 years, and in order for the plan to be approved, you must prove that you have sufficient income for the plan to work. If any of your creditors disagree with the repayment plan, they are permitted to contest it and request different payment terms. Once all negotiations have been completed, the bankruptcy court will approve the plan, and your creditors can't attempt to collect additional monies from you or change any terms of the plan.
One of the reasons many people prefer to work with a bankruptcy law firm for help filing chapter 13 bankruptcy instead of chapter 7 is that they have a chance to keep their home out of foreclosure. When filing chapter 13, your past-due mortgage payments can be included in your repayment plan, which allows you to catch up over time. This may help to make your home payments more affordable. If your home is already in foreclosure, filing chapter 13 will not allow you to prevent the foreclosure, and if you miss payments according to the terms of the repayment plan, it can jeopardize your home's foreclosure. Chapter 13 is the best option for those who want to make an honest attempt at paying back their debt but can't do it without a repayment plan.
It is important to note that not all debt can be discharged through bankruptcy. Some debts that you may have that cannot be discharged typically include student loans, alimony, child support, damages that have been awarded in a personal injury lawsuit, and any income taxes that you owe.