Personal Bankruptcy - Choosing Chapter Seven Or Chapter Thirteen

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

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 Chapter 13 Personal Bankruptcy

Chapter 13 is a little different from chapter 7. The purpose of filing for chapter 13 is to reduce your debt but unlike chapter 7 it does not cancel out the debts. Again, it is administered by a court appointed trustee. The trustee will help you to set up a payment plan. This is agreed by you and your creditors in court. Once the payment plan is in place then you will find the money each month and give it to the trustee. The trustee will then distribute the money as per the agreement in court to various creditors. The aim of chapter 13 is to give the individual a chance to pay off his/her debts without losing all of their assets. However the debts are not cancelled out until they are fully paid. This may take many years depending on the sum of money owed.

Although both these forms of personal bankruptcy allows the debtor to discharge his/her debts there are some criteria that must be considered before going for each one. In the case of chapter 13, you cannot have a debt that exceeds two hundred fifty thousand dollars. This debt must be unsecured and any other debts that are secured should not be more than seven hundred and fifty thousand dollars. In chapter 7, personal assets are only exempt from liquidation in the following cases. Your home is exempt if you owe more than 80% of the value as a mortgage. Your car is exempt if it is worth less than $2,000.

Thus it is important to know what you are getting yourself into before going for one or the other. You should know all the criteria for each chapter and the ramifications should you decide on one. People are often advised to use a bankruptcy lawyer in this situation because they understand the laws and can give you good advice on which chapter best suits your situation best.

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