| Chapter 7 And Chapter 13 Bankruptcy-What's The Difference |
 |
 |
 |
| Written by Chris A Smith |
| Thursday, 02 July 2009 09:35 |
|
What are the different types of bankruptcy that apply to individuals? There are two, Chapter 7 and Chapter 13. You may have heard of Chapter 11 but that is for businesses not individuals.
What are the different types of bankruptcy that apply to individuals? There are two, Chapter 7 and Chapter 13. You may have heard of Chapter 11 but that is for businesses not individuals. Effective October 2005, Congress made sweeping changes to the bankruptcy laws that gave consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the Chapter 7 bankruptcy process. Basically in Chapter 13, the court can approve a payment plan that can run up to five years. This process lets you pay off today's debts with future earnings. Obviously you have to have a steady source of income to qualify for this filing. Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Other property could be sold by a court appointed trustee or given directly to a creditor as payment of your debt. There is also a limitation of how much you can earn during this process. It is not designed for you to profit by not having to pay your debts. Once you have filed for Chapter 7, you will not be able to file again for eight years. Chapter 13 on the other hand, has a waiting period of only two years between filings. Both types of bankruptcy can get rid of unsecured debts and stop foreclosures, repossessions, garnishments and debt collection activities. Both can provide exemptions that allow people to keep certain assets, although exemption amounts will vary by state. Obligations that cannot be satisfied by either form of bankruptcy include child support, alimony, fines, certain taxes and student loan obligations both government and privately funded. Unlike the liquidation proceedings in a Chapter 7, Chapter 13 is designed to allow the debtor to pay off all the debt over a period of time. However, the court must be satisfied with the pay back plan otherwise it can order that other property such as boats, cars etc be sold to insure that the debts are fully paid. Arriving at a reasonable pay back plan is essential if the debtor wishes to keep his property. As part of the new law, persons seeking to file under either chapter have to have attended a government approved credit counseling course within six months of filing. The idea here is to try and solve the credit problem without taking legal action. The second major change just involves Chapter 7. Today you have to satisfy a "means test" to confirm your income does not exceed a certain amount. This amount will vary by state. You can find those limits here. Bankruptcy is an emotional time but a necessary step for those who absolutely need the relief. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Chris A Smith follows the consumer finance industry and reports on credit card law, credit reporting firms, consumer bankruptcy, credit repair, alternative banking products and more. To find more details on bankruptcy and alternative plans, go to the popular credit site CreditFix |