Bankruptcy is the legal process created to give individuals a financial fresh start. There are several types of bankruptcies, which are characterized as chapters. Each of them is slightly different and has its own advantages and disadvantages. The following is a breakdown of the most common forms of personal consumer bankruptcies:
Chapter 7 Bankruptcy
This type of bankruptcy is also sometimes called liquidation bankruptcy. It works by selling off debtor’s assets to pay their outstanding debt. There are some exceptions to what assets can be sold, but many will need to be sold in order to pay back debt.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is sometimes referred to as the wage earner’s plan. It is completed through the creation of a plan to pay back the debt that is approved by the court. In Chapter 13, debtors are allowed to retain possession of certain assets like their home and car while still meeting the requirements for filing bankruptcy. After the payment plan is completed, the debts are discharged under this plan.
Chapter 13 Versus Chapter 7 Bankruptcy
Because these two types of bankruptcy are the most common used by individuals, a person usually chooses between Chapter 13 and Chapter 7 when filing bankruptcy. One consideration when determining which option is best is current income level and the number of assets present. Chapter 7 Bankruptcy is quick and simple but does result in the liquidation of many, if not most a debtor’s assets, there are also income limitations. Chapter 13 allows debtors to keep more of these assets, but takes longer and is more complex to complete.
Next Step before Bankruptcy
If you or someone you love are in over your head financially, bankruptcy could be the best way to restore your life. Remember, certain debts aren’t discharged in bankruptcy. Debts like outstanding student loans and outstanding tax debt are never part of a bankruptcy plan. Call us today to learn more about how bankruptcy can help you out of your tough financial situation.