The Two Most Common Types Of Bankruptcy For Individuals
The personal bankruptcy process can be a great way to regain financial freedom for those that have exhausted traditional debt relief options. In fact, the process was created for individuals that are no longer able to pay back their debt obligations. Before claiming bankruptcy, it’s critical that people understand exactly what is involved in the process, including the different types of bankruptcy that are available. Apart from making a firm decision to move forward with a bankruptcy claim, one of the first things that a borrower must do is decide between the two most common bankruptcy options – Chapter 7 and Chapter 13. The following article will explain the basic difference between the two types.
Before filing for bankruptcy, you need to determine whether to pursue your claim under Chapter 7 or Chapter 13, both of which are quite different from one another. A bankruptcy attorney or financial professional can help you make a firm decision, though it helps to have a basic understanding beforehand.
Chapter 7 Bankruptcy
Also known as liquidation bankruptcy, this is the most common form of personal bankruptcy as it allows the debtor to release a large majority of their debt. Essentially, a debtor’s assets are liquidated to help pay back their creditors and any debt that remains after liquidation is forgiven through court proceedings. Although Chapter 7 can be an effective way to eliminate large portions of debt, it places the debtor’s assets at significant risk.
Chapter 13 Bankruptcy
Commonly referred to as “reorganization bankruptcy,” Chapter 13 involves the creation of a payment plan that allows the debtor to pay back their creditors under structured terms. The advantage of Chapter 13 over Chapter 7 is that the borrower can hold onto their assets as long as they continue to make payments. Typically, the payment period will last from 3-5 years. The downside to Chapter 13 is that it’s fairly difficult to qualify for, since the debtor must prove that they are able to make payments.
For more information on the different types of bankruptcy, consider contacting an attorney of other financial professional that specializes in debt relief.
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.