When it comes to deciding on which type of bankruptcy to file, many people know very little about either Chapter 7 or Chapter 13. The most important piece of information about bankruptcy is that, as a filer, you have very little control over which type of bankruptcy you will be eligible to file.
Recent changes to bankruptcy laws makes it more difficult for many people to qualify for Chapter 7, which is now reserved for those whose debt burdens are matched by an income that is lower than the average income of the state they reside in. When this happens you may only be eligible to receive debt relief assistance through Chapter 13 repayment plan, rather than debt elimination through Chapter 7.
The Differences
In Chapter 7 bankruptcy, you can file for a complete debt elimination, which means your debts will be erased through (a) the creditor writing off the debt as a loss or (b) the creditor obtaining a partial debt payment through asset liquidation. Either way, Chapter 7 provides debt relief for anyone who cannot afford to repay their debts through a structured payment plan.
Chapter 13 allows for your debts to be negotiated and repaid over a three to five year period. The repayment plan is developed according to the amount of debt you are able to pay and approved by the court. Once the court approves the plan, your creditors have very little recourse for collecting on the debts. Instead, they must accept the debt payments as outlined in the Chapter 13 plan.
The Benefits
In a Chapter 13 plan, you may be able to obtain a reduction in the amount of debt owed for certain types of debts. Unsecured debts such as credit cards and medical bills are easily negotiated down to fractions of the actual amount owed. Secured debts such as a mortgage or car cannot be reduced and must be repaid in full. However, secured debt assets are better protected against liquidation through a Chapter 13 repayment plan.
Repaying debts through Chapter 13 allows for you to keep possession of the property and keep your assets out of the hands of creditors. In a Chapter 7, you may be forced to give up certain assets in order to satisfy your debts to creditors. By repaying the debt, you will be able to take ownership of the asset once the debt is satisfied.
Chapter 13 also offers better credit protection than Chapter 7 bankruptcy. The majority of the damage done to your credit is prior to filing for bankruptcy. However, having satisfied your debts through repayment, your creditors are more likely to report favorable information for anyone that has completed a repayment plan. Future creditors are also more likely to look favorably on someone who has repaid their debts rather than had them eliminated.
Recent changes to bankruptcy laws makes it more difficult for many people to qualify for Chapter 7, which is now reserved for those whose debt burdens are matched by an income that is lower than the average income of the state they reside in. When this happens you may only be eligible to receive debt relief assistance through Chapter 13 repayment plan, rather than debt elimination through Chapter 7.
The Differences
In Chapter 7 bankruptcy, you can file for a complete debt elimination, which means your debts will be erased through (a) the creditor writing off the debt as a loss or (b) the creditor obtaining a partial debt payment through asset liquidation. Either way, Chapter 7 provides debt relief for anyone who cannot afford to repay their debts through a structured payment plan.
Chapter 13 allows for your debts to be negotiated and repaid over a three to five year period. The repayment plan is developed according to the amount of debt you are able to pay and approved by the court. Once the court approves the plan, your creditors have very little recourse for collecting on the debts. Instead, they must accept the debt payments as outlined in the Chapter 13 plan.
The Benefits
In a Chapter 13 plan, you may be able to obtain a reduction in the amount of debt owed for certain types of debts. Unsecured debts such as credit cards and medical bills are easily negotiated down to fractions of the actual amount owed. Secured debts such as a mortgage or car cannot be reduced and must be repaid in full. However, secured debt assets are better protected against liquidation through a Chapter 13 repayment plan.
Repaying debts through Chapter 13 allows for you to keep possession of the property and keep your assets out of the hands of creditors. In a Chapter 7, you may be forced to give up certain assets in order to satisfy your debts to creditors. By repaying the debt, you will be able to take ownership of the asset once the debt is satisfied.
Chapter 13 also offers better credit protection than Chapter 7 bankruptcy. The majority of the damage done to your credit is prior to filing for bankruptcy. However, having satisfied your debts through repayment, your creditors are more likely to report favorable information for anyone that has completed a repayment plan. Future creditors are also more likely to look favorably on someone who has repaid their debts rather than had them eliminated.
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