Personal Bankruptcy - Choosing Chapter Seven Or Chapter Thirteen

By: Adrian Fletcher

In the United States, bankruptcy laws are created and amended by the federal government. The Bankruptcy law courts are responsible for administering these laws. The aim of the courts is to mediate in a dispute where one person owes other people or businesses a sum of money. The courts will try to retrieve as much money as possible from the debtor and distribute it to the creditors. However it will do this in a manner that doesn't completely ruin the debtor and allows him/her to recover with prudent financial management. The estimate is that around a million people will go bankrupt the US this year. They will think about filing for bankruptcy if they cannot pay their debts. This article will discuss the options available to them if they want to file for personal bankruptcy.

Filing under chapter 7 personal bankruptcy

Chapter 7 bankruptcy is the most well understood form of personal bankruptcy law. The aim of chapter 7 is to liquidate your assets with the help of a court appointed trustee. The money derived from the sales will be used to pay off creditors. The process involves drawing up a list of assets by the individual that in filing for bankruptcy. This list will be used by the trustee. In many cases personal items like a home and car will be exempt from this list. Chapter 7 costs around $300 for a filing fee. It can only be used once every seven years by the individual in question.

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.

Both of these types of bankruptcy will result in you removing your debt. One is quicker than the other but has longer lasting repercussions to your credit history. Each has some criteria that are worth understanding before deciding if it is right for you. Chapter 7 for instance, does not exempt personal items from liquidation unless they are of a certain value. For instance, your home is not exempt unless you owe 80% of the mortgage. Your car is not exempt unless it's value is less than $2000. In chapter 13, your unsecured debt must not be more than two hundred fifty thousand dollars. Your secured debt cannot be more than seven hundred and fifty thousand dollars.

Ultimately, you need to understand the laws and the repercussions of filing for each chapter before ever going ahead with the process. Many people use a bankruptcy lawyer who will be up to date with the laws and advise you on which chapter suits your needs best.

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