Making ends meet while debts pile up can be a real problem during tough economic times. Personal bankruptcy is always a tough decision, but it’s good business to know which type will best address your situation.

There are significant differences between Chapter 7 and Chapter 13 bankruptcy, and each applies to different cases. The main differences are outlined by the US Courts site:

Chapter 13 enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. During this time the law forbids creditors from starting or continuing collection efforts.

Chapter 7 does not involve filing a plan of repayment. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds to pay creditors. The Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate any remaining assets.

Who Uses Each Type?

Chapter 7 is more commonly used by individuals who have only basic property, like necessary clothing and furniture, with little or no money beyond what’s needed for monthly essentials.

Chapter 13 is more commonly used by individuals who have enough income to pay their expenses and want to keep their home equity or other property, but can’t keep up regular debt payments.

How Long Does It Take?

The process for Chapter 7 bankruptcy moves fairly quickly, and your debts may be discharged within just a few months.

Chapter 13 operates on a schedule that you’ve worked out with the bankruptcy trustee, and allows you anywhere from three to five years to get caught up with payments.

What Are The Advantages?

Chapter 7 lets you start fresh, with no liability for discharged debts. Note that some types of debts cannot be discharged, and property liens cannot be removed. Creditors can’t contact you during an automatic “stay” or after discharge of debt, which provides relief from harassment.

Chapter 13 lets you keep most of your property, and co-signers may be protected as well. Instead of dealing with individual creditors, you can make a single monthly payment to the bankruptcy trustee and not worry about interest during the time you’re repaying what you owe.

Protection From Creditors

Along with the other advantages of personal bankruptcy, consumers appreciate the fact that it can stop pending lawsuits and garnishments that are about to begin or already proceeding. In addition, bankruptcy can result in the removal of outstanding balances from your credit report. While your credit file may indicate bankruptcy, creditors must report that your balance owed is zero.

The bankruptcy process can be difficult and confusing. It is best to speak with a personal bankruptcy attorney because each case is different.

Larry P. Smith & Associates, a Chicago Law Firm, focuses on consumer rights protection. If you are having difficulties with bankruptcy, debt collection or consumer fraud, request a free case review with Larry P. Smith & Associates.

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