Most consumers file either a Chapter 7 or a Chapter 13 bankruptcy. Here’s what you need to know about the two most common bankruptcy chapters.
With a Chapter 7 bankruptcy, the trustee of the bankruptcy can take and sell some of your property and put that money towards paying down your debt, hence why it’s known as a liquidation bankruptcy.
Liquidation with Chapter 7 Bankruptcy
With a Chapter 7 bankruptcy, the trustee of the bankruptcy can take and sell some of your property and put that money towards paying down your debt, hence why it’s known as a liquidation bankruptcy.
The good news is that many types of property are exempt from this liquidation. What you can keep will depend on both state and federal law.
When you file for Chapter 7 bankruptcy, the majority of your unsecured debt and potentially even all of it will be wiped away.
When you file for Chapter 7 bankruptcy, the majority of your unsecured debt and potentially even all of it will be wiped away.
Unsecured debt is debt that has no property attached as collateral, such as a hospital bill. There are certain debts that bankruptcy can’t erase, such as tax debts and student loan debt.
For your secured debt which has property attached as collateral, you have a couple options.
For your secured debt which has property attached as collateral, you have a couple options.
You can let the lender take that property to settle the debt, you can pay the lender the property’s current replacement value or you can set up a payment plan with the lender.
Chapter 7 bankruptcy is usually a three-to-six-month process, but you can’t file for it if your income is high enough for a Chapter 13 bankruptcy.
Reorganization with a Chapter 13 Bankruptcy
When you file for Chapter 13 bankruptcy, you make a proposal regarding how you can repay your debts over the course of three to five years. Your financial situation will determine how much of your total debt that you need to repay.
You keep all your property this way, and if you’ve missed payments on a secured debt, you can make those up to prevent the repossession of your property.
Chapter 13 bankruptcy requires that you have stable income and that your income is enough to stick to your proposed payment plan. If you don’t make enough, you’ll need to file Chapter 7 bankruptcy instead.
Both bankruptcy options can help you recover from your debts. You’ll need to consider your current financial situation when deciding which one you should file. If you make enough for a Chapter 13 bankruptcy, that’s the one you’ll need to choose.
Chapter 13 bankruptcy requires that you have stable income and that your income is enough to stick to your proposed payment plan. If you don’t make enough, you’ll need to file Chapter 7 bankruptcy instead.
Both bankruptcy options can help you recover from your debts. You’ll need to consider your current financial situation when deciding which one you should file. If you make enough for a Chapter 13 bankruptcy, that’s the one you’ll need to choose.
If not, Chapter 7 bankruptcy can also help you. To avoid wasting time filing the wrong type of bankruptcy, it's wise to consult a bankruptcy expert like Demers Gagnier Inc. with any questions you have.
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