Chapter 7 Bankruptcy:
One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts. Chapter 7 bankruptcy, is a liquidation proceeding. The debtor turns over all non-exempt property such as anything financed that is worth value (not including your home and car if current on payments or if you re-affirm with the creditor) to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargable debts usually within four months. Non-dischargable debts are usually tax liens under 3 years old and federal funded student loans. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start". The most common reasons for filing bankruptcy are:
- Unemployment
- Large medical expenses
- Seriously overextended credit
- Divorce
- Tax Liens (over 3 years old)
- Other large unexpected expense
CHAPTER 13 BANKRUPTCY:
Chapter 13 Bankruptcy is also known as a reorganization bankruptcy. Chapter 13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts. Some don't qualify for a chapter, the trustee assigned to your case will determine if someone is eligible to file a chapter 13 depending on your income vs. debt. A chapter 13 stays on your credit report for 7 years from the discharge date unlike the chapter 7 bankruptcy which stays on your credit report for 10 years from the last reported date. Note that a chapter 13 does not discharge for usually 3 - 5 years. However, in a chapter 13 you can keep your home or auto even if you are behind on your payments.
Generally, you are probably a good candidate for Chapter 13 bankruptcy if you are in any of the following situations:
- You have a desire to repay all of your debts, but you need the protection bankruptcy so. You may think "Right Thing To Do".
- You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You can't do this in Chapter 7.
- You need help repaying your debts, but need to leave open the option of filing for Chapter 7 bankruptcy in the future.
- You are a family farmer who wants to pay of your debts, you don't qualify for a 12.
- You have valuable property that is not exempt. When you file for Chapter 7 bankruptcy, you get to keep certain property, that is not exempt.
