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.
What is Chapter 7 Bankruptcy?
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.
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.
How Does Chapter 7 Bankruptcy Work?
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.
What is Chapter 13 Bankruptcy?
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.
How Does Chapter 13 Bankruptcy Work?
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.
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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.