Chapter 7 And Chapter 13 Bankruptcy-What's The Difference
1:30 AM
In the US there are essentially two ways to go through a personal bankruptcy. These two proceedings are known as Chapter 7 and Chapter 13 Bankruptcy and they are significantly different from each other.
In October 2005 Congress changed the bankruptcy laws making it much more difficult to simply walk away from personal debt. The new law essentially says pay back the debt through a court approved payment plan and you can keep your house and some other property (Chapter 13); or sell everything you own, including your property, to pay what you can to discharge your debts (Chapter 7).
Chapter 7 is sometimes refered to as a straight bankruptcy. Basically Chapter 7 requires the liquidation of all but a few work related assets like a vehicle used in work or tools etc. All other property will be sold or given to debtors as payment. The chapter also places a limitation on the amount you can earn during this process. The intent of the law is to insure the debtor does not profit by not paying his debts.
Another difference between the two is the amount of time that must pass before you can refile. With Chapter 7 the waiting period is 8 years. With 13 it is two years.
Both types of bankruptcy can get rid of unsecured debts and stop foreclosures, repossessions, garnishments and debt collection activities. Both can provide exemptions that allow people to keep certain assets, although exemption amounts will vary by state. Obligations that cannot be satisfied by either form of bankruptcy include child support, alimony, fines, certain taxes and student loan obligations both government and privately funded.
Chapter 7 is a straight liquidation. Chapter 13 is a pay back plan. However, unless your plan satisfies all of your debt over the term of the bankruptcy, the Court usually will not allow the debtor to keep property like a boat, time share, recreational vehicles and the like. These items must be sold to meet the requirement to pay all the debt within the scheduled time.
As part of the new law, persons seeking to file under either chapter have to have attended a government approved credit counseling course within six months of filing. The idea here is to try and solve the credit problem without taking legal action. The second major change just involves Chapter 7. Today you have to satisfy a "means test" to confirm your income does not exceed a certain amount. This amount will vary by state. You can find those limits here.
There are other strategies to settle your debt without going through bankruptcy. It all depends on your personal situation and what best makes sense for you and your family. Any decision to file for bankruptcy should not be made without consulting a qualified bankruptcy attorney.
In October 2005 Congress changed the bankruptcy laws making it much more difficult to simply walk away from personal debt. The new law essentially says pay back the debt through a court approved payment plan and you can keep your house and some other property (Chapter 13); or sell everything you own, including your property, to pay what you can to discharge your debts (Chapter 7).
Chapter 7 is sometimes refered to as a straight bankruptcy. Basically Chapter 7 requires the liquidation of all but a few work related assets like a vehicle used in work or tools etc. All other property will be sold or given to debtors as payment. The chapter also places a limitation on the amount you can earn during this process. The intent of the law is to insure the debtor does not profit by not paying his debts.
Another difference between the two is the amount of time that must pass before you can refile. With Chapter 7 the waiting period is 8 years. With 13 it is two years.
Both types of bankruptcy can get rid of unsecured debts and stop foreclosures, repossessions, garnishments and debt collection activities. Both can provide exemptions that allow people to keep certain assets, although exemption amounts will vary by state. Obligations that cannot be satisfied by either form of bankruptcy include child support, alimony, fines, certain taxes and student loan obligations both government and privately funded.
Chapter 7 is a straight liquidation. Chapter 13 is a pay back plan. However, unless your plan satisfies all of your debt over the term of the bankruptcy, the Court usually will not allow the debtor to keep property like a boat, time share, recreational vehicles and the like. These items must be sold to meet the requirement to pay all the debt within the scheduled time.
As part of the new law, persons seeking to file under either chapter have to have attended a government approved credit counseling course within six months of filing. The idea here is to try and solve the credit problem without taking legal action. The second major change just involves Chapter 7. Today you have to satisfy a "means test" to confirm your income does not exceed a certain amount. This amount will vary by state. You can find those limits here.
There are other strategies to settle your debt without going through bankruptcy. It all depends on your personal situation and what best makes sense for you and your family. Any decision to file for bankruptcy should not be made without consulting a qualified bankruptcy attorney.
About the Author:
Chris A Smith follows the personal finance industry and reports on credit card issues, credit reporting agencies, personal bankruptcy, credit rebuilding, alternative banking products and more. To find more details on bankruptcy and alternative plans, go to the popular credit site CreditFix
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