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Personal Bankruptcy- Which Is Right Ch 7 Or Ch 13

Feb 23, 2008
Bankruptcy laws in the US are set by the federal government and administered in the Bankruptcy law courts. The purpose of the laws is to reach an equitable agreement between the person filing for bankruptcy and those that are owed money. The laws try to get as much of the money that is owed to the creditor without making it impossible for the debtor. It is thought that nearly one million people will go bankrupt this year in the United States. They will consider filing for bankruptcy. This article will cover the ways they can go if they decide to file for personal bankruptcy.

Filing under chapter 7 personal bankruptcy

This is the most common way that people file for bankruptcy. Chapter 7 involves the bankruptcy court liquidating your assets and paying back your creditors. You are responsible for drawing up your list of assets. In most cases this does not include items such as your home or car. A trustee that is appointed by the court will be responsible for selling your assets and paying off your creditors. Chapter 7 costs around $300 for an administration fee. It can only be filed every seven years by one individual.

Filing For Chapter 13 Bankruptcy

Unlike chapter 7, chapter 13 bankruptcy does not cancel out your debt but it does allow you to keep all your assets. chapter 13 is a way to set up a payment plan and an agreement between debtor and creditors about how the debt will be paid off. This agreement is reached in the bankruptcy law courts. A trustee is assigned to the debtor by the courts. The trustee is responsible for drawing up the payment plan and ensuring that it is followed through. The debtor will give money to the trustee each month that will then be apportioned to the various creditors. The debt is only canceled out when all the outstanding debts have been paid but the aim of chapter 13 bankruptcy is to structure the payment plan so that the debtor can meet the conditions of the creditors without harassment.

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.

The bottom line is that you know the rules and regulations of the various chapters well before ever filing for one or the other. It may be an idea to employ a lawyer versed in the bankruptcy laws who can advise you on the best option for your particular case.
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