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Chapter 7 and Chapter 13: the differences in these bankruptcies

There are many people out there who may be confused by the difference between Chapter 7 and Chapter 13 bankruptcy. The first thing to realize about both of these bankruptcies is that they can both be very useful to people who are looking to reorganize their finances and get to a healthier place in terms of their finances.

Chapter 7 is seen as the more traditional filing, and one of the most prominent features of this bankruptcy is the liquidation process. This is the process whereby the assets of the bankrupt individual are sold off to pay for the debts he or she has. Many debts can also be discharged through the Chapter 7 process.

However, Chapter 7 bankruptcy has a maximum income requirement, and if you exceed this threshold, you are ineligible for Chapter 7. This is where a Chapter 13 bankruptcy can come into play. Again, there is an income threshold for Chapter 13, but Chapter 13 offers a different set of features for the bankrupt individual.

Chapter 13  bankruptcy offers a debt repayment plan, where the individual reorganizes his or her debts and agrees to plan to pay them back over a certain number of years (three or five, depending on the case). This restructuring can be really helpful -- as can the protections Chapter 13 offers for certain assets, such as a home. Chapter 13 can stop foreclosure.

Bankruptcy serves a very important function, and for those who are considering this legal process, it is best to consult with an experienced attorney to make sure you are going about it in the right way.

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