| The Difference Between Chapter 7 and Chapter 13 Bankruptcy |
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| Written by Chris A Smith |
| Sunday, 21 June 2009 08:36 |
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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. Prior to October of 2005, going through a personal bankruptcy was a fairly simple and painless process. It did ruin your credit but it also allowed for a more liberal discharging of debt. In 2005, the law changed and is designed to provide an incentive to people to file under Chapter 13 rather than Chapter 7. For people with a steady income, Chapter 13 allows them to keep some property like a house or a car that they would otherwise lose in a Chapter 7 filing. Chapter 13 is a court approved "pay back" plan that can run for as long as five years. If a person opts for Chapter 7 they are essentially agreeing to liquidate all of their belongings and property, with the exception of work related tools and some basic household goods, to pay back the debtors. This is called a straight bankruptcy. To insure that the debtor does not profit from this discharge of debt, the law puts a restriction on how much the debtor can earn while the bankruptcy proceeds. Another difference between the two is the amount of time that must pass before you can refile. With Chapter 7 the waiting period is 8 years. With 13 it is two years. While there are some similarities in the types of debt that can be discharged through either Chapter 7 or 13, there will be some differences as well depending on the state where you file. Most unsecred debt, garnishments, foreclosure notices and collection calls can be discharged through bankruptcy. However, child support, alimony, fines, certain taxes and student loans cannot. Unless you have an acceptable plan to satisfy your debt under Chapter 13, the court usually will not allow you to keep property when the creditor has security lien on it. This could include your home as well as well as boats, vacation homes, recreational vehicles etc. Bankruptcy is no longer the slam dunk procedure that it was. The new law now requires that persons wanting to file either Chapter 7 or 13 attend an approved credit counseling course sometime within the six months before filing. This is another effort to solve the credit crisis without further clogging up the courts with another bankruptcy. In addition, there is now a "means test" for persons wanting to go the liquidation route. If the court believes that you make too much income to just walk away from the debt via liquidation, they will only allow you to file Chapter 13 which is the pay back plan. There are other strategies to settle your debt without going through bankruptcy. It all depends on your personal situation and what best makes sense for you and your family. Any decision to file for bankruptcy should not be made without consulting a qualified bankruptcy attorney. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Chris A Smith follows the consumer credit industry and reports on credit card law, credit reporting agencies, consumer bankruptcy, credit repair, alternative banking products and more. To find more details on bankruptcy and alternative plans, go to the informative credit site CreditFix |