What's The Difference In Chapter 7 & Chapter 13 Bankruptcy?

By: William Blake

Are you at that financial point in your life where you're considering filing for bankruptcy? There are two types of bankruptcy for you to consider as an individual: Chapter 7 and Chapter 13. They are very different and you need to learn the details of both before choosing one.

Chapter 7 bankruptcy is the one that most people seek to file. When a person files for bankruptcy under Chapter 7, their assets are liquidated to pay what is owed to the creditors. The courts decide on a reasonable amount for payment based on individual circumstances.

All of the assets are not exhausted. Each state has its own procedure as to what is to be liquidated and you may be able to keep your home and car.

The laws were changed in October 2005 regarding Chapter 7 bankruptcy. You now have to pass a test. Your income must be lower than the median income in your home state. You must also not have the assets available to pay at least 25% of your debt in order to qualify.

Under special circumstances an exception can be made to the testing requirements. Such was made for victims of Hurricane Katrina so they could start over after their homes were flooded. If you are not allowed to file for Chapter 7 you can appeal but it will be another court date and expense but it could be worth it.

Chapter 13 allows you to repay your creditors. You have a certain amount of time to repay your debt and ways are created to allow you to do this. Your assets aren't liquidated and the court works with you to find an amount you can reasonably handle for repayments.

This process is now a little different with the new bankruptcy laws. The court used to decide what was necessary for you to pay or not. Things like rent or mortgages, groceries and utilities etc were deemed necessary. Now the IRS has a formula to determine this.

The government wants people to think long and hard about filing for bankruptcy. Before any bankruptcy proceedings take place, the potential filer must attend credit counseling. Also, the government can liquidate or non-exempt any assets that were purchased right before bankruptcy was declared. The attempts to hide money within property not subject to seizure are no longer an option for abusers of the system.

Bankruptcy filing is a serious matter. If you are determined to file, know which type you stand a chance of qualifying for with the courts. Since laws are tougher, be aware that bankruptcy lawyers will charge more for their part in the process.

Article Source: http://www.retirementlivingarticledirectory.com

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