Personal Injury Attorney

Bankruptcy is a way some people choose to take to help get them out of debt. With credit readily available, it can be easy to fall into a black hole of mounting bills.

When searching for answers to this debt, you might consider bankruptcy. The rules of bankruptcy may seem confusing and overwhelming, especially if you aren’t familiar with how the process works. One thing you should understand straight away is the difference between the two types of bankruptcy filings individuals typically file. These two choices, Chapter 7 and Chapter 13, involve two very different paths to getting out from under debt.

Chapter 7 Discharges Debt

Chapter 7 deletes debts., but not without making sacrifices. The court may require asset liquidation to repay creditors. A trustee is appointed to go through debts and assets. Creditors then receive notice of the action and can make claims. The trustee then decides which debts get paid first. In some cases, creditors may not wind up getting anything, especially if they are far down in the order of payment. These are usually credit cards and other unsecured debt, obtained without backing or collateral.

Once the trustee decides what to pay, some of your assets may be sold off. Others that are secured by collateral, like cars, may be seized by the creditor. At the end of the process, however, most of your debt is charged off. Creditors cannot come back to you and try to collect on the items discharged. Chapter 7 bankruptcy stays on your credit report for up to 10 years.

Chapter 13 Restructures Debt

If there is not much in the way of property to seize or assets to liquidate, the better option may be Chapter 13. This process differs in that it does not discharge anything – it gets creditors and consumers to the table to negotiate a settlement. Things like mortgages and home loans may not be affected by a Chapter 13 filing unless requested.

Once a settlement amount is reached, a payment plan is structured. The plan can go anywhere from three to five years. During this time, if you make payments as agreed, the terms of the settlement remain intact. At the end of the payment period, the bankruptcy process is complete. If the payment plan is not followed, however, the creditors may continue collection proceedings. Chapter 13 may fall off a credit report in seven years or less. Because it is a repayment plan and not a discharge, it is seen as less of a black mark on your history.

When comparing the two bankruptcy choices, you may need more information. A chapter 13 bankruptcy lawyer in Memphis, TN may be able to help you navigate the bankruptcy system.

Thanks to Darrell Castle & Associates, PLLC for their insight into bankruptcy law and chapter 13 vs chapter 7.