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Joel Votolato

Is Bankruptcy Right For Me?


Bankruptcy is a legal process designed to provide relief to individuals and businesses struggling with overwhelming debt. In the United States, there are several types of bankruptcy filings available, but the most commonly used by individuals are Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is designed for those who cannot repay their debts. This process involves the sale of assets to pay off creditors, and any remaining debt is discharged. To be eligible for Chapter 7 bankruptcy, an individual must pass a means test that determines their income level and ability to repay their debts. This test takes into account the individual's income and expenses to determine whether they have sufficient disposable income to repay their debts.

Chapter 13 bankruptcy, also known as reorganization bankruptcy, is designed for those who have a steady income and want to repay their debts over time. This process involves creating a repayment plan that lasts between three and five years. The debtor must repay their creditors through regular payments made to a trustee, who distributes the funds to creditors according to the plan. In Chapter 13 bankruptcy, the debtor may keep their assets and continue to make payments on secured debts, such as mortgages and car loans.

One of the main differences between Chapter 7 and Chapter 13 bankruptcy is the effect on assets. In Chapter 7 bankruptcy, the debtor's non-exempt assets are sold to pay off creditors, while in Chapter 13 bankruptcy, the debtor is able to keep their assets and continue making payments on secured debts. This means that individuals who want to keep their homes or vehicles may be more inclined to file for Chapter 13 bankruptcy.

Another key difference between Chapter 7 and Chapter 13 bankruptcy is the length of the process. Chapter 7 bankruptcy is typically a faster process, lasting between three and six months, while Chapter 13 bankruptcy can last between three and five years. This longer process is due to the repayment plan that must be created and adhered to in Chapter 13 bankruptcy.

Finally, the eligibility requirements for Chapter 7 and Chapter 13 bankruptcy differ. As mentioned earlier, Chapter 7 bankruptcy requires an individual to pass a means test, while Chapter 13 bankruptcy requires a steady income and the ability to create a repayment plan.

In summary, Chapter 7 and Chapter 13 bankruptcy offer different options for individuals struggling with overwhelming debt. Chapter 7 bankruptcy is designed for those who cannot repay their debts, while Chapter 13 bankruptcy is designed for those who have a steady income and want to repay their debts over time. Each process has different requirements, effects on assets, and lengths of time, so it is important to consult with a bankruptcy attorney to determine which option is best for your individual situation.



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