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Chapter 7 and Chapter 13 Bankruptcy: Some Important Facts

Bankruptcy is an officially announced incapacity or deterioration of capacity of a company or an individual in repaying its creditors. A bankruptcy petition might be filed against a debtor by the creditors (in case of involuntary bankruptcy) in an endeavor to recover a part of what they are entitled to receive or begin a loan modification. In most of the instances, nevertheless, bankruptcy is requested by the borrower (this is known as voluntary bankruptcy that a bankrupt individual or business applies for).
Chapter 7 Bankruptcy

This is also termed as straight bankruptcy and is the commonest form of bankruptcy in the United States since it permits the debtor to make a fresh start from the beginning. This bankruptcy code is applicable for couples, individuals, partnerships and corporations. Usually, the discharge takes place within a period of 4-6 months subsequent to filing.

Under a chapter 7 bankruptcy, the non-exempt assets are supervised by a trustee who sells them off to gratify the creditors in sequence of their secured interests. Any wages earned by the debtor is considered as inaccessible to the creditors who on the date of filing had a vested interest.

This bankruptcy code is normally utilized by those people who do not have enough earnings to compensate for their outstanding debts after making payments for their essential requirements and who do not expect to pay off their creditors at any time.

When Should You Go For Chapter 7 Bankruptcy?

  • If there is no participation of any cosigner
  • If you find out that paying off any of your debts is impossible
  • If legal proceedings by creditors is impending, filing halts every collection proceeding when in court

Negative Aspects of Chapter 7 Bankruptcy

  • It damages your credit rating
  • You have to pay filing fees, court fees and attorney fees upfront
  • If there is a cosigner, he would be accountable for the debt you repay

Alternatives to Chapter 13 Bankruptcy

The alternatives of chapter 7 bankruptcy are debt consolidation repayment plan/credit counseling or chapter 13 bankruptcy. This is reasonable when you are unable to discharge sufficient amount of your debts or need to give up excessive property.
Chapter 13 Bankruptcy

Chapter 13 bankruptcy is also known as wage earners plan. It is basically a restructuring of the debts of an individual borrower with a new repayment plan. When you have more than necessary flexible earnings to become eligible for chapter 7 bankruptcy or have properties you wish to save, you can take this code into consideration. Your debts should be less than a particular extent and you should have a stable source of income.

Under chapter 13 bankruptcy, the debtor confirms once again to pay the entire debt amount or a portion of his debts. The repayment amount might vary from 10%-100% on the basis of the income of the debtor and the type of debt owed. This bankruptcy code permits the debtor to reorganize his payments and arrange a new repayment plan (generally 3-5 years) that is easier for him to handle.

To become eligible for chapter 13 bankruptcy, the limit of secured debts of an individual is $750,000 whereas the limit of unsecured debts is $250,000.

When Should You Go For Chapter 13 Bankruptcy?

  • If you have fallen back on your mortgage payments and you want to draw level if you are indebted to the IRS
  • When you require respite from collection proceedings or if you want to maintain your commitment to pay off your creditors and want some breathing space
  • If the properties you wish to save are going to be liquidated under a chapter 7 bankruptcy and your flexible earnings are excessively high in order to become eligible for chapter 7.
  • You have already filed for chapter 7 at some point in the last 6 years. There is a cosigner for you. If you can pay off your debts within a period of 3-5 years.
  • If you want to drop the choice of filing a chapter 7 bankruptcy at some point in the future. If you are a farmer who is not eligible for chapter 12 bankruptcy and bears debt unassociated with agriculture.

Negative Aspects of Chapter 13 Bankruptcy

  • You need to pay filing fees, court fees and attorney fees upfront.
  • It spoils your credit.
  • It stays on your credit report for 10 years.
  • For availing any credit, you have to pay a higher rate of interest.

Alternatives to Chapter 13 Bankruptcy

If your debts are mostly unsecured debts (unsecured loans, medical bills and credit cards), you can go for debt restructuring with the help of a debt management or credit counseling agency as an alternative that offers specified services in unsecured debt consolidation. Other than Chapter 7 and 13, there is another form of bankruptcy – Chapter 11 Bankruptcy.

Related Info :

Bankruptcy Lawyers : The bankruptcybalance.com network is a network of specialized bankruptcy attorneys or bankruptcy lawyers who offerbankruptcy help throughout the United States. At bankruptcybalance.com,our attorneys will give you the solid legal representation and protectionyou need and will do everything they can to help you on your way to a financially stable future.

Wage Earner Bankruptcy : Chapter 13 bankruptcy doesn’t have to be the end of the world.Through our information, learn the chapter 13 wage earner bankruptcybasics.