Lawyers New - Bankruptcy can be a daunting and overwhelming process for anyone to go through. However, it can also be an effective solution for those who are struggling with debt and financial hardship. Two of the most common types of bankruptcy are Chapter 7 and Chapter 13.
We will explore the differences between these two options and help you determine which one the best fit for your individual situation.
Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, is designed for individuals who have little to no disposable income and cannot afford to pay back their debts.
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In a Chapter 7 bankruptcy, a trustee is appointed to oversee the liquidation of the debtor's non-exempt assets.
The proceeds from the sale of these assets used to pay off as much of the debt as possible, and any remaining debt is typically discharged.
To file for Chapter 7 bankruptcy, you must first pass a means test to determine your eligibility.
This test compares your income to the median income in your state and determines whether or not you have enough disposable income to pay back your debts.
If you do not pass the means test, you may still be able to file for Chapter 7 bankruptcy under certain circumstances.
Once you have filed for Chapter 7 bankruptcy, an automatic stay is put in place, which stops most collection activities and lawsuits.
A trustee is appointed to oversee the liquidation of your non-exempt assets. You will need to provide the trustee with a complete list of all of your assets, as well as any debts that you owe.
The trustee will then sell your non-exempt assets and distribute the proceeds to your creditors. Any remaining debt will typically discharged, which means that you will no longer be responsible for paying it back.
Chapter 13 bankruptcy, also known as a "wage earner's plan," is designed for individuals who have a regular income and can afford to pay back at least some of their debts over time.
In a Chapter 13 bankruptcy, a repayment plan is created that allows the debtor to pay back their debts over a period of three to five years.
To file for Chapter 13 bankruptcy, you must first create a repayment plan that details how you will pay back your debts over the next three to five years. This plan must approved by the court and your creditors.
Once your repayment plan has approved, an automatic stay is put in place, which stops most collection activities and lawsuits. You will then make regular payments to a trustee, who will distribute the funds to your creditors.
At the end of the repayment period, any remaining debt will typically discharged, which means that you will no longer be responsible for paying it back.
Deciding which type of bankruptcy is right for you will depend on a number of factors, including your income, the types of debts you have, and your overall financial situation.
Here are some key differences between Chapter 7 and Chapter 13 bankruptcy to consider:
To file for Chapter 7 bankruptcy, you must pass a means test to determine your eligibility.
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This test compares your income to the median income in your state and determines whether or not you have enough disposable income to pay back your debts.
If you do not pass the means test, you may still be able to file for Chapter 7 bankruptcy under certain circumstances.
To file for Chapter 13 bankruptcy, you must have a regular income and be able to afford to pay back at least some of your debts over time.
In a Chapter 7 bankruptcy, the debtor's non-exempt assets sold to pay off their debts, while in a Chapter 13 bankruptcy, the debtor is able to keep their assets and pay off their debts through a repayment plan.
In a Chapter 7 bankruptcy, most of the debtor's unsecured debts, such as credit card debt and medical bills, discharged at the end of the bankruptcy process. However, some debts, such as student loans and taxes, are not dischargeable.
In a Chapter 13 bankruptcy, the debtor is able to pay off their debts over time through a repayment plan. Any remaining debt at the end of the repayment period is typically discharged, but certain exceptions.
Both Chapter 7 and Chapter 13 bankruptcy will have a negative impact on your credit score.
However, the impact of Chapter 7 bankruptcy may be more severe and longer-lasting, as it typically stays on your credit report for 10 years, compared to 7 years for Chapter 13 bankruptcy.
The cost of filing for bankruptcy will vary depending on a number of factors, including the complexity of your case and whether or not you choose to hire an attorney.
In general, Chapter 7 bankruptcy is typically less expensive than Chapter 13 bankruptcy, as it is a shorter process.
It's important to note that bankruptcy should only be considered as a last resort, as it can have serious consequences and may not always be the best option for everyone.
It's also important to consider other alternatives, such as debt consolidation or debt settlement, before deciding to file for bankruptcy.
In conclusion, deciding whether to file for Chapter 7 or Chapter 13 bankruptcy can be a complex decision that requires careful consideration of your individual circumstances.
It's important to weigh the pros and cons of each option and to consult with a qualified bankruptcy attorney to help you make an informed decision.
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