Many people have debt and sometimes despite their best efforts, they are unable to pay what they owe. They may decide to file for bankruptcy and there are two types to consider, Chapter 7 and Chapter 13.
Chapter 7 bankruptcy
Chapter 7 bankruptcy is known as a liquidation bankruptcy. Individuals and businesses can file for this type of bankruptcy. It may require the person or business to sell property to pay off the debt.
They must also meet a certain threshold that determines whether they can pay the debt with disposable income. Disposable income is the money available to pay the debt after his or her required expenses are met.
For individuals, Chapter 7 bankruptcy may be the best option for a person who does not own a home. That is because under Chapter 7 bankruptcy, he or she usually cannot avoid foreclosure or having his or her property repossessed.
One of the benefits of this type of bankruptcy is that it can often be completed in three to five months, allowing the business or individual to start over quickly.
Chapter 13 bankruptcy
Chapter 13 bankruptcy is known as a reorganization bankruptcy. The bankruptcy filer must successfully complete a repayment plan, which may be in place for three to five years. Only individuals can file for this type of bankruptcy.
If all of the payments are made during the bankruptcy period, the filer may have unsecured debts discharged.
There are some items that cannot be discharged in bankruptcy such as mortgages, tax bills and child support. An experienced attorney can review the filer’s circumstances and provide guidance about which type of bankruptcy may be the right option.