One of the primary decisions you will have to make when you decide to file for bankruptcy is what chapter of protection you will file. There are two main personal bankruptcy types: Chapter 7 and Chapter 13. While there are some similarities between these two types, there are also some important differences.
Understanding what each chapter of bankruptcy can do for you will help you to make the most informed decision. On top of the benefits of each type, you should learn about what obligations you will have. Here are some important points for you to know about personal bankruptcy:
Chapter 13 is known as reorganization bankruptcy or a working man’s bankruptcy because you will have to make payments on your debts. These payments are made to the bankruptcy trustee and are disbursed according to a predetermined order of repayment. In this type of bankruptcy, you are able to hang onto some property, so you should make sure you understand how this will impact your assets.
A Chapter 7 bankruptcy is known as a liquidation bankruptcy because you don’t repay the debts by making payments to the bankruptcy trustee. Instead, your assets that aren’t exempt from the process are liquidated to repay the debts. Any debts that remain after the liquidation payments are forgiven. There are strict means qualifications for this type of bankruptcy, so not everyone will qualify for this chapter. Typically, the Chapter 7 bankruptcy is a faster process than a Chapter 13.
The automatic stay
The automatic stay goes into effect when you file bankruptcy. This prevents your creditors from being able to make collection attempts. Phone calls and collection letters must stop once the automatic stay is put into place. It is possible for some creditors to have the automatic stay lifted, so find out how your debts will be impacted. The automatic stay doesn’t apply to certain debts, such as child support.
All bankruptcies will discharge your debts when the bankruptcy is finished. In the case of a Chapter 7, this happens fairly quickly because you don’t have to make payments. In a Chapter 13, debts aren’t discharged until you have made all of the payment on the payment schedule on time. In both cases, some debts like student loans and child support arrears aren’t discharged. You will have to complete certain education requirements before the bankruptcy is discharged.