Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?
Most personal bankruptcies in the US are either what is called “Chapter 7″ or “Chapter 13″. What do these terms mean and which one of these is right for you if you are thinking about filing bankruptcy?
These terms refer to the respective chapters of the United States Tax Code which describes the legal operation of the bankruptcy. Personal bankruptcies normally fall under Federal bankruptcy laws, but State property rights are also relevant to bankruptcy cases.
Chapter 7 bankruptcy is fairly simple and is the most common type of personal bankruptcy. Chapter 7 bankruptcies involve the complete liquidation of debt upon sale of the debtor’s non-exempt assets. Chapter 7 is used where a person has very little property and very few assets that have any value.
In practice, most debtors filing bankruptcy under Chapter 7 have no home, a relatively modest income, and little or no non-exempt assets of value to sell. In these cases, the debts are completely discharged while the debtor keeps his or her personal property.
Chapter 13 bankruptcies are a little more involved and pertain to people and businesses with non-exempt assets. Chapter 13 involves a legally binding repayment plan, in addition to the sale of non-exempt assets.
The main advantage of filing Chapter 13 is that it allows a homeowner with regular income to avoid foreclosure while the debts are restructured. In the case of a business it allows the business to continue to operate while new arrangements are worked out with creditors.
The primary objective of Chapter 13 bankruptcy is to give an individual or business breathing space to work out an arrangement with creditors. Normally the debt is restructured so the debtor can afford regular payments and not be forced to sell their home. Most who have serious debt issues but who own homes, earn an above average income, or own valuable personal property, file chapter 13 bankruptcy.
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