Personal Bankruptcy- Which Is Right Ch 7 Or Ch 13

by Adrian Fletcher

Bankruptcy laws in the United States are created by the federal government and administered by the Bankruptcy courts. The aim of the laws is to mediate between debtors and their creditors. They aim to retrieve any money that is owed to creditors without completely ruining the person that owes the money. Nearly one million people in the US will go bankrupt during the year and file for bankruptcy. This article will examine the options open to people in this position that are filing for personal bankruptcy.

Filing under Ch7

Filing chapter 7 personal bankruptcy is the most common form of personal bankruptcy. Essentially it is a court arranged way to liquidate your assets and use this money to service your debts. The process involves drawing up a list of personal assets that a court appointed trustee will sell off. The court will then distribute the money from this process to all the creditors. Chapter 7 bankruptcy costs approximately $300 for a filing fee. It can be filed once every 7 years by the individual.

Filing Chapter 13

Chapter 13 is a little different from chapter 7. The purpose of filing for chapter 13 is to reduce your debt but unlike chapter 7 it does not cancel out the debts. Again, it is administered by a court appointed trustee. The trustee will help you to set up a payment plan. This is agreed by you and your creditors in court. Once the payment plan is in place then you will find the money each month and give it to the trustee. The trustee will then distribute the money as per the agreement in court to various creditors. The aim of chapter 13 is to give the individual a chance to pay off his/her debts without losing all of their assets. However the debts are not cancelled out until they are fully paid. This may take many years depending on the sum of money owed.

Although both these forms of personal bankruptcy allows the debtor to discharge his/her debts there are some criteria that must be considered before going for each one. In the case of chapter 13, you cannot have a debt that exceeds two hundred fifty thousand dollars. This debt must be unsecured and any other debts that are secured should not be more than seven hundred and fifty thousand dollars. In chapter 7, personal assets are only exempt from liquidation in the following cases. Your home is exempt if you owe more than 80% of the value as a mortgage. Your car is exempt if it is worth less than $2,000.

Ultimately, you need to understand the laws and the repercussions of filing for each chapter before ever going ahead with the process. Many people use a bankruptcy lawyer who will be up to date with the laws and advise you on which chapter suits your needs best.

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