| For anyone that has financial difficulties, one option is to file for bankruptcy. You should never enter into this lightly, but if you do decide that this is the best option then learn as much as you can beforehand. This article will cover the two options open to someone filing for personal bankruptcy. These are chapter 7 and chapter 13 bankruptcy. It will compare chapter 7 versus chapter 13 bankruptcy. Chapter 7 bankruptcy is effectively the liquidation of your assets to pay off all outstanding debts. If you are eligible for chapter 7 bankruptcy, the court effectively liquidates your assets and distributes the money to your creditors. This clears your debts and you can start again. Most people go for this option. A liquidation bankruptcy may seem like a desperate option but the courts ensure that you will not be made destitute. Certain assets are exempt from bankruptcy. These items are the things you need to continue to be a productive member of the community. So your home and car are often exempt. However the interpretations of the law vary for each state so the criteria for exemption may vary. Having said this, chapter 7 bankruptcy has come under heavy scrutiny of late because of the rise in bankruptcies and the widespread abuse of the law. In October 2005, the law was changed to make it stricter. Part of the changes to the law have included means testing for people to be eligible to file for chapter 7 bankruptcy. They must have an annual income that is below the median of the state in which they live. And they cannot have assets that total at least 25% of the total debt. There are allowances for exceptions to the new ruling, so that people in unusual circumstances are not unfairly disadvantaged by the changes. For instance, the people that suffered during Hurricane Katrina were given special considerations allowing them to start again after flooding had destroyed their homes. Chapter 13 bankruptcy is also known as a repayment bankruptcy. Essentially, you are going to court to renegotiate the terms under which you repay your debts. This generally means restructuring the time frame in which you make the repayments but you may be able to renegotiate the amount of debt too in some cases. You will retain your personal assets including your home and car. The court will look into things like your income and how much you can reasonably afford to pay off each month without undue stress. The changes to the bankruptcy statutes have changed how chapter 13 is applied too. Now the schedule of repayment is worked out by a formula created by the IRS rather than a court appointed trustee. In summary, chapter 7 is a way to clear your debts and start a fresh. Chapter 13 is a way to pay off your debts in a more manageable fashion. Both have there advantages depending on your financial situation and whether you fit the criteria. |
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