What’s The Difference In Chapter 7 And Chapter 13 Bankruptcy?
Is the financial situation in your life such that you need to file for bankruptcy? If so, there are two types of bankruptcy that apply to the individual: Chapter 7 and Chapter 13. They differ in many ways. Learn the details of both before choosing which type of bankruptcy to file for.
Chapter 7 is the most common. When a person files under Chapter 7, their assets are sold to pay the money that is owed to their creditors. The courts decide on the amount of payment based on an individual’s situation.
All of the assets are not liquidated. Each state has its own policy as to what assets are considered a part of the liquidation equation. You may be allowed to keep your home and car.
The laws were changed in October 2005 regarding Chapter 7 bankruptcy. You now have to pass a test. Your income must be lower than the median income in your home state. You must also not have the assets available to pay at least 25% of your debt in order to qualify.
Under special circumstances an exception can be made to the testing requirements. Such was made for victims of Hurricane Katrina so they could start over after their homes were flooded. If you are not allowed to file for Chapter 7 you can appeal but it will be another court date and expense but it could be worth it.
Chapter 13 allows you to repay your creditors. You have a certain amount of time to repay your debt and ways are created to allow you to do this. Your assets aren’t liquidated and the court works with you to find an amount you can reasonably handle for repayments.
This process is now a little different with the new bankruptcy laws. The court used to decide what was necessary for you to pay or not. Things like rent or mortgages, groceries and utilities etc were deemed necessary. Now the IRS has a formula to determine this.
It is not easy to file for bankruptcy. A potential filer must first attend credit counseling. The government can also take any assets that were obtained just prior to declaring bankruptcy thus not making it an option to hide money within property previously purchased by abusers.
Filing bankruptcy is very serious. Know which type you qualify for before filing. Also know that bankruptcy lawyers will charge more for their part in you filing.
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How do you know if credit card consolidation is the right way to pay off your credit cards? Visit the Debtopedia website at http://www.debtopedia.com to find out more about it and how to determine if it’s the right answer for you.
