What is Bankruptcy?
Filing a bankruptcy petition is the declaration of one’s inability to pay back loans or debts. It’s also a plea to the bankruptcy court for legal assistance and protection. Bankruptcy is found right in our Constitution, and after dealing with Great Britain’s oppression and debtor’s prisons, bankruptcy still exists today to provide Americans a “Fresh Start.”
There are now various different forms of bankruptcy designed to be used in a variety of situations. These different forms of bankruptcy are referred to as “chapters” after different-numbered chapters found in the statutes of the bankruptcy laws. Some of the most frequently filed forms of bankruptcy include Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.
What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy can be filed by individuals. Under this chapter, a person’s assets over a certain amount are sold and the money raised by the sale is used to pay back creditors. But, in exchange for selling excess assets, Chapter 7 Bankruptcy generally wipes clean a person’s credit slate. Usually, the goal is to get a Fresh Start and possibly an opportunity to rebuild responsible credit. However, a Chapter 7 Bankruptcy notation may stay on the person’s credit for about ten years. So, reestablishing credit should always take a second or more distant seat when considering bankruptcy. The promise of Chapter 7 Bankruptcy is not to get new credit, but to relieve oneself of the crushing stress of old credit.
What is Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy is another popular form of bankruptcy. In a Chapter 13 Bankruptcy, individuals are able to retain most if not all of their assets while their debts are adjusted to affordable repayment levels. It is important that individuals who need to file a Chapter 13 Bankruptcy have a fixed and steady income with which to affordably repay debts. Chapter 13 Bankruptcy filers will have a period of time to affordably repay their debts and get their finances under control. For most individuals, the time permitted to repay is three or five years. Chapter 13 Bankruptcy is complex, and an experienced bankruptcy attorney can help make the determination.
What are the Differences Between Chapter 7 and Chapter 13 Bankruptcy?
Both forms of bankruptcy can be filed by individuals, and they will both have a negative impact on future ability to obtain credit; however, there are some key differences to be aware. The main differences are the control of property and assets and the length of time for court involvement. Under Chapter 7 Bankruptcy, individuals give up their rights to excess property and assets and can get out of bankruptcy quickly. In a Chapter 13 Bankruptcy filing, the individual will generally get to keep control of his or her property, but be under court supervision for a longer period of time. Additionally, in Chapter 13, the individual will work with the court to propose an affordable repayment plans in which to pay debts over time. The quicker and decisive fashion of Chapter 7, sometimes called Straight Bankruptcy, and the more controlled but longer periods of court involvement are the main differences between these two popular forms of bankruptcy.