Some people get into debt because their lifestyle exceeds their income while others find themselves in debt because they lost their job and haven’t been able to recover fast enough. Whatever the reasons are, there is always a way to find your way out of debt. Whatever way you choose to get out of debt, filing for bankruptcy may be an option. Depending on the severity of debt, an individual may have an option between Chapter 7 and Chapter 13.

What Chapter is Right for You?

Each person’s situation is different from the next. As such an individual must take stock of what options they have when trying to file for bankruptcy. Before jumping the gun and filing, there a few question that needed to be asked. This needs to be done because every chapter of bankruptcy contains different conditions and clauses. Some of the questions that need to be asked are whether or not you have assets you want to keep? Does your job’s income allow for you to come up with a reorganization play to aid in covering some of your debt? These are just a couple of questions that need to be addressed before making a decision.

Chapter 7

One option comes in the form of Chapter 7 bankruptcy. Chapter 7 bankruptcy is also known as a liquidation bankruptcy. As the name implies a debtor’s non-exempt assets are liquidated in order for the debt to be covered. After these non-exempt items have been liquidated the amount of money gained is used to pay off as much as the debt as possible. Non-exempt assets include a number of items such as expensive musical instruments, a second car or vehicle, cash, bank accounts, stock, bonds, vacation homes, and collections such as stamps, coins, etc. Some examples of exempt assets include necessary clothing items, pensions, necessary household items, appliances, and goods, necessary tools for the debtor’s trade, jewelry up to certain value, and other essential items of life. If a debtor is filing Chapter 7 because of a suffering small privately owned business, there are certain consequences to be known. When filing Chapter 7 for business reasons all operations are stopped immediately. Effectively the business is closed for good. Despite this, all income generated after filing bankruptcy is exempt and can be kept by the debtor.

Chapter 13

If a debtor wishes to keep certain non-exempt assets for whatever reason, Chapter 13 may be a better choice to file for. Chapter 13 is similar to Chapter 11 but is designed for individuals rather than businesses. Under Chapter 13, the debtor is allowed to retain ownership over their assets. Chapter 13 also allows for individuals to come up with a reorganization plan in order to pay off debt over a period of three to five years. Another aspect of Chapter 13 is that a certain amount of debt can be eliminated depending on an individual’s level of income. An advantage that Chapter 13 bankruptcy has over filing for Chapter 7 is that housing foreclosures may be stopped, though it may be reinstated afterward. Another advantage to Chapter 13 over Chapter 7 is that it can allow for super discharges of debt that are not found in Chapter 7.

Author Bio: If you\’re in need of information about bankruptcy, visit Bankruptcy District Court where you can find additional information on bankruptcy laws and types of bankruptcy.

Category: Finances
Keywords: bankruptcy laws, chapter 13 bankruptcy explained, bankruptcy information, bankruptcy