Nobody enjoys having to file for bankruptcy; however, many people run into unfortunate circumstances in life and are forced to declare bankruptcy. When people are thinking about how to get back on their feet, it is important to make the correct first step and file for the proper type of bankruptcy.
The two types of bankruptcy that most people hear about are Chapter 7 and Chapter 13. Deciding which form of bankruptcy to file can have significant consequences for the future.
What is Chapter 7 Bankruptcy?
In Chapter 7 bankruptcy, the person filing will have the opportunity to have a release from some, if not all, forms of unsecured debt. Prior to this relief, the person filing for Chapter 7 bankruptcy will have to sell off almost all of their nonexempt assets to pay back as much of their debt as they possibly can. This means that while many people could lose a significant amount of their equity or assets, their property could be saved from the bankruptcy process. People can take advantage of Chapter 7 bankruptcy to slow down the process of any foreclosure; however, once people get back on their feet the foreclosure process may continue. Many people ask about how long this process takes.
Most filings for Chapter 7 bankruptcy will take anywhere from three to four months to run their course. People with a high annual income may not be eligible for Chapter 7 bankruptcy, while people who make below the national average are likely eligible for Chapter 7 bankruptcy. Of course, filing for Chapter 7 bankruptcy is a complicated legal venture. There is a significant amount of paperwork that individuals may want legal advice on to ensure accurate filing.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy has a few key differences from Chapter 7 bankruptcy. First, people filing for Chapter 13 bankruptcy will not receive a release from their debt in most cases. In fact, people filing this form of bankruptcy will typically be forced to come up with a repayment plan as part of their bankruptcy agreement. This payment plan will typically last a few years. At the end of this period, the remaining debts may be discharged.
Similar to Chapter 7, people filing Chapter 13 bankruptcy will typically be able to avoid liquidation of their property. To be eligible for this form of bankruptcy, people will need to have a steady income on a monthly basis in order to finance the repayment plan. This requires submission of a repayment plan to the court system.
The differences between Chapter 7 and Chapter 13 have important implications for the future. It is important that people file the proper kind of bankruptcy to make sure they set themselves up well for the future recovery process. Speaking with an experienced attorney will help you be able to make a more informed decision about filing for one form or the other.