Types Of Bankruptcy - What Are The Differences?
An individual in the United States of America has two options when filing bankruptcy, chapter 7 whereby the individual’s debts are basically eliminated and chapter 13 in which the individual’s debts are allowed to be paid off over five years.
Businesses can use a Chapter 11 bankruptcy during which they can reorganize their debt until it’s paid off or renegotiated in order to remain in business until their financial house is back in order.
As an individual you should be able to find out which bankruptcy you can file under with a brief visit to a bankruptcy attorney. With all the new bankruptcy laws there are now a series of tests to determine whether or not an individual can qualify for chapter 7 bankruptcy.
The main part of the test for an individual will consist of an income calculation to find out whether or not the individual has a monthly income that is higher than the state average, if he or she does the individual would then have to file under chapter 13 and would not be allowed access to chapter 7.
In Chapter 7 bankruptcy, all debts, including secured and unsecured can be discharged. However, some assets owned by the individual may be confiscated and sold by the court in order to satisfy a portion of the secured debt.
So out of the two different types of bankruptcy an individual can file under, chapter 7 will reward the most financial relief.
The paying off of debt over time
If a person does not qualify for Chapter 7 bankruptcy, they might consider a Chapter 13 plan, which requires making monthly payment to a court trustee who then sends payments to all creditors listed as part of the repayment plan.
Of the two types of bankruptcy this helps a person meet their financial obligations while keeping creditors from taking collection actions against the debtor.
Many people often used to start with I chapter 13 bankruptcy, but then found themselves financially incapable of meeting their obligations and so managed to move into a chapter 7 bankruptcy.
However since 2005 when the all-new bankruptcy laws became law, the only way to qualify for chapter 7 bankruptcy is to come up with a below average monthly income result in the courts means test.
If the person has the means, current income level, to pay off their debts, they are restricted to filing for Chapter 13 whether they like it or not.
Whether you file for chapter 7 or 13, any assets or initial payments will first go to creditors with priority access. Priority access will be granted to but not limited to, student loans, part income taxes and generally most other government obligations you may have.
Once all of your creditors with priority access have been dealt with the payments to unsecured creditors will start to take place.
When you’ve filed bankruptcy the fact that you have done so can stay on your public record for as long as 10 years into the future! So you really must carefully consider all your options before taking on a bankruptcy, bankruptcy should always be your last option.
