Chapter 7 vs. Chapter 13 Bankruptcy

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What Is Consumer Bankruptcy?

Consumer bankruptcy is a formal legal process that permits people to get some relief for their debts. These are debts associated with purchases, especially those used with credit and loans. Bankruptcy allows the consumer to get a new start while at the same time resolving issues with lenders.

Consumer bankruptcy is different from business bankruptcy, which applies to business organizations. A person who operates their own business needs to be careful that they understand the differences between consumer and business bankruptcy.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy allows a person to have most of their debts discharged or cancelled. Chapter 7 is often called "liquidation" bankruptcy.

A Chapter 7 discharge can be very helpful for a person because of the fact that their financial obligations and debts will effectively be wiped out. Once a Chapter 7 discharged is filed and granted, the debtor would not be required to pay back the debts that were discharged. Under a Chapter 7 Bankruptcy discharge, not all debts are subject to cancellation. For instance, courts will usually not discharge student loans. The effects of a Chapter 7 discharge can be tricky. The discharge can sometimes affect the person’s credit scores in a negative way. They may also have to take mandatory financial counseling courses.

When Should I File under Chapter 7 instead of a Chapter 13?

You should file a Chapter 7 if the following circumstances apply:

What Are the Requirements to File Chapter 7 Bankruptcy?

In order to file bankruptcy under Chapter 7, you need to meet the following basic requirements:

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows a person to restructure their finances and begin paying off creditors. Their debt will not be cancelled; instead, the person may be allowed to obtain different repayment plans in light of their financial situation. This may be favorable for persons who are beginning to recover financially. Chapter 13 may be more beneficial for a person’s credit ratings in the long run.
Knowing the differences between Chapter 7 and 13 filings can help a person to avoid more financial woes in the future. There are many different filing and eligibility requirements associated with both Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 vs. Chapter 13 Bankruptcy

Chapter 7 bankruptcy allows a person to have most of their debts discharged or cancelled. Chapter 7 is often called "liquidation" bankruptcy.

A Chapter 7 discharge can be very helpful for a person, since their debts will effectively be cancelled. They won’t be required to pay back the debts that were discharged. Not all debts are subject to cancellation. For instance, courts will usually not discharge student loans. The effects of a Chapter 7 discharge can be tricky. The discharge can sometimes affect the person’s credit scores in a negative way. They may also have to take mandatory financial counseling courses.

Chapter 13 bankruptcy allows a person to restructure their finances and begin paying off creditors. Their debt will not be cancelled; instead, the person may be allowed to obtain different repayment plans in light of their financial situation. This may be favorable for persons who are beginning to recover financially. Chapter 13 may be more beneficial for a person’s credit ratings in the long run.

Knowing the differences between Chapter 7 and 13 filings can help a person to avoid more financial woes in the future. There are many different filing and eligibility requirements associated with both Chapter 7 and Chapter 13 bankruptcy.

Can I Switch to a Different Kind of Bankruptcy after Filing?

It may be possible to switch to a different kind of bankruptcy claim after filing. In fact, courts may often require a person to switch from one kind of bankruptcy chapter to another. This is known as "forced conversion" and may occur according to a judge’s discretion. An example of this is when a court requires a person to switch from Chapter 7 to Chapter 13. This can happen if the court finds that the person actually has enough finances to begin paying creditors off. Converting from Chapter 13 to Chapter 7 may also be possible if the person meets the requirements for doing so.

When Should I File under Chapter 13 instead of a Chapter 7?

Chapter 13 is recommended if:

Do I Need a Lawyer?

Filing for bankruptcy can sometimes be a challenging task. It’s in your best interests to hire a lawyer if you need help filing for bankruptcy. Your attorney can help explain the differences between Chapter 7 and Chapter filings. Your lawyer can also help determine which approach would work best for you. A qualified lawyer can represent you during the process in order to help you.

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Last Modified: 08-25-2015 01:54 PM PDT

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