Chapter 7 and Chapter 13 Bankruptcy – Which Fits You Best?

In the US bankruptcy code you'll find that chapter 7 and chapter 13 deal with individuals and are the most often filed in bankruptcy courts. There are significant differences between the two and if you plan on filing your own petition, meaning without the help of a bankruptcy lawyer, then you need to be aware of these differences and make sure you prepare your bankruptcy petition accordingly, though it is not recommended that you go it alone, it's just too easy to make mistakes and get denied.

With chapter 7 bankruptcy you will have the opportunity to discharge your debts (mostly unsecured debts) which rids you of the burdens of these debts without further obligation. This chapter will work best for an individual with a great amount of unsecured debt, such as credit card debts and unsecured loans and has little or no income. Typically if the person owns real property or is leasing a car or making installments on an existing auto loan, the payments associated with these properties will need to continue to be made since these are secured debts, which can not be discharged, they can only be adjusted under chapter 13. Also any assets that the filer owns will be included in the bankruptcy estate and be liquidated to repay creditors.

With chapter 13 bankruptcy the filer is able to get new terms of repayment for existing debts. No debts, whether secured or unsecured, will be discharged under this chapter and this is one of the most important differences between chapter 7 and chapter 13 bankruptcy filings. Under this chapter you'll be required to come up with a plan of repayment for all your debts, which you will establish in an order of priority. Chapter 13 is suitable for people with disposable income, if no existing source of income exists then the petition will most likely be denied and you may be suggested to file under chapter 7 instead.

Take a good assessment of your personal financial situation by making spreadsheets of your total debts, income and assets and you need to figure out first if you're spending more than you're earning. If you're ending up with little or no money after paying your living expenses you'd want to consider talking to a bankruptcy specialist to run a means test and proceed with preparing a petition. Just keep in mind that debts are handled entirely different in chapter 7 vs chapter 13 bankruptcy. Keep your expectations realistic and don't get discouraged if you find out that your debts will not be discharged, re-adjusting your debts to a more manageable repayment agreement is still a better situation than your current financial struggles.

Source by Chass Perez

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