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Personal Bankruptcy- Choosing Ch7 or Ch13 bankruptcy

Bankruptcy laws in the United States are created by the federal government and administered by the Bankruptcy courts. The aim of the laws is to mediate between debtors and their creditors. They aim to retrieve any money that is owed to creditors without completely ruining the person that owes the money. Nearly one million people in the US will go bankrupt during the year and file for bankruptcy. This article will examine the options open to people in this position that are filing for personal bankruptcy.

Filing Under Chapter Seven

This is the most common way that people file for bankruptcy. Chapter 7 involves the bankruptcy court liquidating your assets and paying back your creditors. You are responsible for drawing up your list of assets. In most cases this does not include items such as your home or car. A trustee that is appointed by the court will be responsible for selling your assets and paying off your creditors. Chapter 7 costs around $300 for an administration fee. It can only be filed every seven years by one individual.

Filing For Chapter 13 Bankruptcy

Chapter 13 differs from chapter 7 in that it does not aim to clear a person from their debts but merely to set up a structure so that they can pay off the debts free from being harassed by creditors. The courts will help the debtor and creditors reach an agreement about how the debtor will pay off his/her debts. This will be some form of payment plan that will last for so many years and be a sum of money each month. The debtor will give this money to a court appointed trustee who will then give the money to the creditors. In this way the debtor will not have to liquidate their assets but work towards paying off the debts over a period of time.

Although both these types of personal bankruptcy will eventually clear your debts there are some things to consider before filing for one or the other. Chapter 7 will be a quick way of removing this debt but it will also give you a bad credit history and make it harder to recover from bankruptcy. Some personal assets that may be exempt from liquidation, like your home and car need to meet a specific criteria before they are eligible. You must owe 80% of the mortgage on the home. The car must be valued at less than $2000. In chapter 13, it will take longer to remove the debt but you will not lose any assets. However, the debt you will be paying off has to match the following criteria. You can't have a unsecured debt in excess of two hundred fifty thousand dollars. You can't have a secured debt that is more than seven hundred and fifty thousand dollars.

Thus it is important to know what you are getting yourself into before going for one or the other. You should know all the criteria for each chapter and the ramifications should you decide on one. People are often advised to use a bankruptcy lawyer in this situation because they understand the laws and can give you good advice on which chapter best suits your situation best.

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