Which Is Better - Chapter 7 Or Chapter 13 Bankruptcy
For anyone that has financial difficulties, one option is to file for bankruptcy. You should never enter into this lightly, but if you do decide that this is the best option then learn as much as you can beforehand. This article will cover the two options open to someone filing for personal bankruptcy. These are chapter 7 and chapter 13 bankruptcy. It will compare chapter 7 versus chapter 13 bankruptcy.
Chapter 7 bankruptcy is the option that most people go for. It is a way to get a fresh start and effectively draw a line under your existing debts. It is sometimes referred to as a liquidation bankruptcy because all your assets are sold by the courts and the money made is handed out to your creditors.
A liquidation bankruptcy may seem like a desperate option but the courts ensure that you will not be made destitute. Certain assets are exempt from bankruptcy. These items are the things you need to continue to be a productive member of the community. So your home and car are often exempt. However the interpretations of the law vary for each state so the criteria for exemption may vary.
Having said this, a liquidation or chapter 7 bankruptcy is not as straightforward as it used to be. The rise bankruptcy claims and instances where people were abusing chapter 7 prompted some changes to the laws. In October 2005, the chapter 7 laws were changed.
Since the changes, people have needed to be means tested to be eligible to file for chapter 7. For instance, they must have a personal income that is below the median income of the state in which they reside. Also the total assets of the person cannot be more than 25% of the outstanding debt.
The laws still have some flexibility in them to make allowances for people that have had particularly bad luck or been the victim of freakish events. An example of this was the people that suffered after Hurricane Katrina hit. Many had flooded homes and lost most of their assets. They were allowed to file chapter 7 if they wanted to.
Chapter 13 is not as common. It is effectively going to court to ask for help in renegotiating your debts. Renegotiating generally means restructuring the time you have to pay off the debts and getting any creditors off your back. In some cases you can also renegotiate the size of the debt.
Assets are not liquidated but the debt is not cleared as in a chapter 7 bankruptcy. The courts look at your financial situation and work out a reasonable schedule for you to pay back your creditors.
Chapter 13 has also changed since the revision of the bankruptcy laws. Before the changes the court appointed trustee would work out the payment schedule. Now it is derived by a formula created by the IRS.
In short, chapter 7 liquidates your assets but clears you debts. Chapter 13 renegotiates the way you pay off your debts but you will not lose any of your assets and will stop receiving calls from creditors. Both have there place depending on your circumstances and whether you are eligible.
Article Source: http://www.search-raven.com
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