What Is The Difference Between Chapter 7 And Chapter 13 Bankruptcy
Many people are in a difficult financial position and are looking for a way to have some relief. There are a couple different types of bankruptcy and chapter 7 and chapter 13 are the most common. When many people talk about bankruptcy they are talking about chapter 7 bankruptcies. Here you will learn what the difference is between chapter 7 and chapter 13 bankruptcies so you can decide what route is right for you.
What Is Chapter 7 Bankruptcy?
If you declare chapter 7 bankruptcy you are unable to pay back your debts. This means that your income is too low, and your debt is too high for you to reasonably be able to pay off the debts.
In this case all of your debt is forgiven. Of course, the bankruptcy will go on your record and the majority of your assets could be reposed. Which is why it is important that you don't enter to a bankruptcy lightly. It is still a major decision.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is different than chapter 7 in that you do have enough money to pay off the debts, but you just might not be able to in the amount of time that is allotted. For instance, you might make a good income, but with the interest is constantly accruing so you simply cannot keep up.
In this case you would go through a structured bankruptcy. The judge will put you on a payment plan that is more reasonable so that you can pay it off. It still may take years to get out of debt, but so long as your income stays the same and you follow the plan, you can become debt free.
With chapter 13 bankruptcy there will be some debts that will need to be paid in full and others that they will negotiate on.
The debts to be paid in full are called priority debts. Some of these debts include wages to employees, tax debts, child support and alimony. You might be able to get a lower rate on credit cards, get the interest forgiven or other negotiations for those types of debts. But the priority debts must be paid in full.
Know that when you apply for either chapter 7 or chapter 13 bankruptcy that you must go through a process with the lawyer and get approved for the bankruptcy. A judge will look at your situation and decide which type of bankruptcy you can declare, if any. You can also try contacting a professional like Howard S. Goodman Bankruptcy Attorney to learn more.