The reality is that sometimes it becomes financially unstable and sometimes it seems that everything can go wrong. For situations where health, job, and family take a toll on the ability to maintain and manage finances and debts, then filing for bankruptcy can offer much-needed refuge. You need to understand the difference between each of them to find out which bankruptcy solution fits you the best. Below is a brief and clear understanding of the different types of bankruptcy and how to approach the decision as to which is the best to undertake.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as ‘liquidation bankruptcy.’ This type of bankruptcy is the simplest. It entails the process of selling the possessions of a debtor that are not protected from being seized by creditors. This is suitable for persons who have low-income earners or those who cannot afford to pay back all or most of the amount that is owed.
After the liquidation of the assets, all other eligible obligations get erased which leads to the qualification for a new start. However, not all assets can be sold and not all debts can be wiped out because some debts such as student loans, tax debts, and alimony or child support are mostly non-dischargeable.
Chapter 13 Bankruptcy
Chapter 13 called “wage earner’s plan” enables one who has a steady source of income to make a plan to pay all or part of the debts over 3-5 years. It is used more by those people who have valuable assets such as a house or car which they would like to hold on to since this procedure allows one to rectify defaults and prevent the risks of losing property through foreclosure or repossession.
Chapter 13 thus differs from Chapter 7 in the sample in that it does not entail the sale of a debtor’s assets but rather the repayment plan for the outstanding debts through the administration of a special committee in the court.
Chapter 11 Bankruptcy
Chapter 11 is commonly filed by corporations but is open to a single person who has thousands of dollars in debt or has a complicated record of financial operations. It allows the debtor to rearrange his plight of business affairs, debts, and things that he possesses. It is this form of bankruptcy allows the firm to carry on with its operations as they come up with a debt repayment schedule. For individuals, Chapter 11 means that their debt is beyond Chapter 13 limits and they need a more varied plan of loan receiving.
Choosing Whether You Should File Chapter 7 or Chapter 13
Timing of bankruptcy has to do with factors such as the level of income, kinds and size of debts as well as plans in terms of having a fresh start. Any form of advice from a legal practitioner with specialized knowledge in bankruptcy law will be helpful given the individuality. A lawyer may guide one in terms of possible legal action, help explain the different possibilities that each type of bankruptcy implies, and assist in completing the appropriate forms.
