When people hear the word “bankrupt” it certainly sparks negative connotations, of people broke and desperate, down on their luck and up against a massive wall of debt. This notion may come from the old days when people could be jailed for declaring bankruptcy—luckily no one has been jailed for bankruptcy since 1833. Bankruptcy is not the doom and gloom that you may think, and for a lot of Americans, is a viable solution to financial issues. Let’s take a look at the two most common types of individual bankruptcy: Chapter 7 and Chapter 13 Bankruptcy.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the version of bankruptcy that most people are probably most familiar with. In a Chapter 7 process, your unsecured debts are forgiven, and your creditors are legally prohibited from contacting you about your debts. Debts that can be discharged include:
accounts in collection
credit card debt
medical debt
personal debt (to friends, family)
past due utility bills
auto accident bills (excluding DUI claims)
business debt
money owed to landlords
veterans assistant loans
and certain other borrowed funds.
It’s a big list, and for some people wiping these debts is the fresh start that they need to move on with their lives.
How is Chapter 13 Bankruptcy Different?
Chapter 13 bankruptcy, also known as reorganization bankruptcy, does not discharge all of your bets. Instead, your debt is organized into a repayment plan based on your amount of debt and your ability to make payments. In this case, you keep your property, even nonexempt assets. Chapter 13 bankruptcy is usually a better option than chapter 7 if you need to avoid foreclosure on properties or repossession of assets.
So now you know the basics of Chapter 13 and Chapter 7 bankruptcy, and maybe you are thinking its not so scary and you’d like to discuss your options with an attorney. Filing for bankruptcy can relieve loads of stress and will reorganize your financial life. The process is not impossible, but you should speak with an experienced bankruptcy attorney as soon as possible.
