In the US there are essentially two ways to go through a personal bankruptcy. These two proceedings are known as Chapter 7 and Chapter 13 Bankruptcy and they are significantly different from each other.
Prior to October of 2005, going through a personal bankruptcy was a fairly simple and painless process. It did ruin your credit but it also allowed for a more liberal discharging of debt. In 2005, the law changed and is designed to provide an incentive to people to file under Chapter 13 rather than Chapter 7. For people with a steady income, Chapter 13 allows them to keep some property like a house or a car that they would otherwise lose in a Chapter 7 filing. Chapter 13 is a court approved "pay back" plan that can run for as long as five years.
Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Other property could be sold by a court appointed trustee or given directly to a creditor as payment of your debt. There is also a limitation of how much you can earn during this process. It is not designed for you to profit by not having to pay your debts.
Another difference between the two is the amount of time that must pass before you can refile. With Chapter 7 the waiting period is 8 years. With 13 it is two years.
While there are some similarities in the types of debt that can be discharged through either Chapter 7 or 13, there will be some differences as well depending on the state where you file. Most unsecred debt, garnishments, foreclosure notices and collection calls can be discharged through bankruptcy. However, child support, alimony, fines, certain taxes and student loans cannot.
Chapter 7 is a straight liquidation. Chapter 13 is a pay back plan. However, unless your plan satisfies all of your debt over the term of the bankruptcy, the Court usually will not allow the debtor to keep property like a boat, time share, recreational vehicles and the like. These items must be sold to meet the requirement to pay all the debt within the scheduled time.
Bankruptcy is no longer the slam dunk procedure that it was. The new law now requires that persons wanting to file either Chapter 7 or 13 attend an approved credit counseling course sometime within the six months before filing. This is another effort to solve the credit crisis without further clogging up the courts with another bankruptcy. In addition, there is now a "means test" for persons wanting to go the liquidation route. If the court believes that you make too much income to just walk away from the debt via liquidation, they will only allow you to file Chapter 13 which is the pay back plan.
The decision to file for bankruptcy can be a very emotional one and one that can cause a great deal of friction within a family. Don't make the stress greater by trying to do it yourself. Seek out a qualified bankruptcy attorney to guide you throught the process.
Prior to October of 2005, going through a personal bankruptcy was a fairly simple and painless process. It did ruin your credit but it also allowed for a more liberal discharging of debt. In 2005, the law changed and is designed to provide an incentive to people to file under Chapter 13 rather than Chapter 7. For people with a steady income, Chapter 13 allows them to keep some property like a house or a car that they would otherwise lose in a Chapter 7 filing. Chapter 13 is a court approved "pay back" plan that can run for as long as five years.
Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Other property could be sold by a court appointed trustee or given directly to a creditor as payment of your debt. There is also a limitation of how much you can earn during this process. It is not designed for you to profit by not having to pay your debts.
Another difference between the two is the amount of time that must pass before you can refile. With Chapter 7 the waiting period is 8 years. With 13 it is two years.
While there are some similarities in the types of debt that can be discharged through either Chapter 7 or 13, there will be some differences as well depending on the state where you file. Most unsecred debt, garnishments, foreclosure notices and collection calls can be discharged through bankruptcy. However, child support, alimony, fines, certain taxes and student loans cannot.
Chapter 7 is a straight liquidation. Chapter 13 is a pay back plan. However, unless your plan satisfies all of your debt over the term of the bankruptcy, the Court usually will not allow the debtor to keep property like a boat, time share, recreational vehicles and the like. These items must be sold to meet the requirement to pay all the debt within the scheduled time.
Bankruptcy is no longer the slam dunk procedure that it was. The new law now requires that persons wanting to file either Chapter 7 or 13 attend an approved credit counseling course sometime within the six months before filing. This is another effort to solve the credit crisis without further clogging up the courts with another bankruptcy. In addition, there is now a "means test" for persons wanting to go the liquidation route. If the court believes that you make too much income to just walk away from the debt via liquidation, they will only allow you to file Chapter 13 which is the pay back plan.
The decision to file for bankruptcy can be a very emotional one and one that can cause a great deal of friction within a family. Don't make the stress greater by trying to do it yourself. Seek out a qualified bankruptcy attorney to guide you throught the process.
About the Author:
Chris A Smith follows the consumer credit industry and reports on credit card law, credit reporting agencies, consumer bankruptcy, credit repair, alternative banking products and more. To find more details on bankruptcy and alternative plans, go to the popular credit site CreditFix
