Are you considering bankruptcy, but aren’t sure which type of bankruptcy is right for you? Personal bankruptcies are either a Chapter 13 or a Chapter 7. There are significant differences between these programs, but when the bankruptcy is discharged by the court, almost all of your debts will be wiped clean. Which type of bankruptcy is right for you will depend on your assets, income, debts, and goals from the bankruptcy. The primary distinction between filing for a Chapter 7 or a Chapter 13 is income. If your income falls below a certain threshold, you can file for a Chapter 7. If not, you may not be eligible to file for a Chapter 7 and must file a Chapter 13.
Under a Chapter 7 bankruptcy, all of your non-exempt assets are liquidated. This type of bankruptcy is designed to wipe out unsecured general debts such as medical bills and credit cards. In order to qualify for a Chapter 7, you must have very little discretionary income.
When you file for a Chapter 7, a trustee will be appointed who be responsible for overseeing and administering your case. The trustee will review your bankruptcy package, including financial statements, asset statements, a list of debts and all supporting documentation. The trustee will be responsible for selling all non-exempt property and distributing the proceeds to your creditors. Depending on where you live, some of your assets may be exempt from sale. These are usually your primary residence, a car, and wedding and engagement rings.
If you earn too much money to qualify for a Chapter 7, then you must file a Chapter 13 bankruptcy. This is also known as a wage earner’s program because you have a steady income. Chapter 13 is designed for those who have a regular income. This type of bankruptcy does not require that all non-exempt assets be sold. Instead, you and your attorney will develop a repayment plan that will pay all or a portion of your unsecured debt. This plan must provide your creditors at least as much as they would get if you filed a Chapter 7. Depending on your income, the repayment plan will last from three to five years. Filing a Chapter 13 bankruptcy can also help stop a foreclosure on your home.
Like in Chapter 7, a trustee will be appointed and will be responsible for ensuring you make payments on your repayment plan. You are responsible for making all payments to the trustee on time. The trustee then distributes the monies to your creditors. Once the payment plan is completed, the court will discharge any remaining debts. In order for a debt to be discharged, it must be listed in the repayment plan.
Filing for bankruptcy is a serious decision. The law is complicated and can vary from state to state. It is a good idea to discuss your situation with a bankruptcy attorney before filing for bankruptcy. There are many requirements that must be met and it can be difficult to ensure all documentation is submitted on time and in the proper format.
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