The Key Differences Between Forms Of Bankruptcy
When people think about how to deal with an insurmountable amount of debt, they often turn to bankruptcy as a way to get rid of it. However, there are actually two main forms of bankruptcy that can be used by individuals. With each form having its own advantages, it's important that you know the key differences between them so you can pick the one that will work best for your financial needs.
Chapter 7
What makes Chapter 7 bankruptcy unique is that it is a form of liquidation. You will be allowed to use this form of bankruptcy only if you meet the low income and means testing requirements. It is recommended that people use Chapter 7 if they have limited property or equity in their home due to the liquidation requirements.
When you reach the other side of the bankruptcy process, you'll end up wiping out all of your unsecured debt, such as medical bills and credit card debt. For major debts, such as property or vehicle, you'll have the option to surrender the secured asset or reaffirm your debt so you can keep the item. Filing for Chapter 7 bankruptcy is a relatively quick process compared to the other forms of bankruptcy and can give you a fresh start to your finances.
Chapter 13
Chapter 13 bankruptcy is different because it's a repayment plan that allows you to reorganize your debts. You make regular payments to a trustee, who then distributes those payments to your creditors. At the end of the repayment plan, you will have the remainder of your debts discharged so that your finances can go back to normal.
Some of the things that can be included in Chapter 13 are secured debts with missed payments, such as your mortgage payment or car payment. You also have priority debts that must be paid back in full, such as back taxes and child support. Unsecured debts may not be paid back in full and are the lowest priority of all your debts. This includes medical bills, credit card bills, and any personal loans that are not secured by an asset.
People use Chapter 13 bankruptcy when they have too many high-value assets, are looking to stop a foreclosure, want to prevent wage garnishment from happening, or want to keep their bankruptcy from impacting their credit history. Since you are repaying many of your debts, you'll be able to recover faster from bankruptcy before it's removed from your credit history.
If you are considering filing for bankruptcy, contact an attorney in your area, such as McCool & McCool.
