Bankruptcy is a legal process that helps individuals and businesses who are unable to pay their debts. The process of bankruptcy allows them to eliminate or restructure their debts, and start fresh. Personal bankruptcy is a type of bankruptcy that is designed for individuals who are struggling financially. There are two types of personal bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as a “liquidation bankruptcy.” This type of bankruptcy allows individuals to eliminate most of their unsecured debts, such as credit card debt and medical bills, by liquidating their non-exempt assets. Non-exempt assets are assets that are not protected by bankruptcy exemptions. In most cases, individuals who file for Chapter 7 bankruptcy do not have any non-exempt assets, and therefore, they do not lose any property.
The process of filing for Chapter 7 bankruptcy begins with the debtor filing a petition with the bankruptcy court. The debtor must also provide a list of their assets, liabilities, income, and expenses. Once the petition is filed, an automatic stay goes into effect. The automatic stay prohibits creditors from taking any action to collect debts, such as calling the debtor or garnishing their wages.
The next step in the process is the meeting of creditors. The debtor must attend this meeting and answer questions under oath from the bankruptcy trustee and any creditors who choose to attend. After the meeting of creditors, the trustee will sell any non-exempt assets and distribute the proceeds to the creditors. Most debtors who file for Chapter 7 bankruptcy receive a discharge of their debts within a few months of filing.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as a “reorganization bankruptcy.” This type of bankruptcy allows individuals to restructure their debts and repay them over a period of three to five years. Unlike Chapter 7 bankruptcy, individuals who file for Chapter 13 bankruptcy do not have to liquidate their assets.
The process of filing for Chapter 13 bankruptcy begins with the debtor filing a petition with the bankruptcy court. The debtor must also provide a list of their assets, liabilities, income, and expenses, as well as a proposed repayment plan. The repayment plan must be approved by the bankruptcy court. Once the repayment plan is approved, an automatic stay goes into effect, prohibiting creditors from taking any action to collect debts.
The debtor must make regular payments to the bankruptcy trustee, who will distribute the payments to the creditors according to the approved repayment plan. Once the debtor completes the repayment plan, any remaining unsecured debts are discharged.
Bankruptcy is a complex legal process that can be overwhelming for individuals who are struggling financially. However, understanding the differences between Chapter 7 and Chapter 13 bankruptcy can help individuals make informed decisions about their financial future. While Chapter 7 bankruptcy is designed for individuals who have few assets and need to eliminate their debts quickly, Chapter 13 bankruptcy is designed for individuals who have a steady income and want to restructure their debts over time. If you are considering filing for bankruptcy, it is important to consult with an experienced bankruptcy attorney who can help you navigate the process and make the best decision for your financial situation.
