For personal bankruptcy you have two choices, you can file chapter 13 bankruptcy or you have the option of filing a chapter 7 bankruptcy, the catch is if you qualify.
In 2005 there were changes made to the bankruptcy laws, the major changes came in the area of qualifications. Where in the past most people could qualify for chapter 7 bankruptcy, under the new bankruptcy law they could no longer qualify and only had one choice, that was chapter 13 bankruptcy. Lets take a look at both chapters and explore the differences.
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Chapter 7 Bankruptcy
This is called a "Total Discharge" bankruptcy, this means (if you qualify) you can get all unsecured debt discharged and start fresh. This will be on your credit report for 10 years and will impact your ability to get credit for a period of time thereafter.
Qualifications - Lets first talk about assets. In general you have to relinquish most savings, extra property, cars (over a certain value), jewelry and things of this nature. The court will dissolve and distribute the proceeds accordingly, the court has guidelines it follows for this process. The major factor for qualifying for this route is household income. Each state has a median income chart which it uses to determine your qualification status. It's pretty clear cut and if you are under the income limit for your state you have the option to file this way.
Chapter 13 Bankruptcy
There are two reasons you will file this type of insolvency, one is if you cannot qualify for the other version and the other is if you have assets you want to keep, most commonly it is your house.
Chapter 13 is a repayment plan which usually goes for 5 years, it can be approved for 3 years but the court has to approve this. The monthly payment is set by the court in accordance with your financial situation, this means they set you up with a payment you can afford. After you have completed the 5 year repayment plan all outstanding debt is discharged, you are debt free.
As you can see the major difference in the two types of bankruptcy is the discharge time, one is discharged within months and the other requires a repayment plan.
There may be assets you want to save, and even though you qualify for chapter 7 you may want to choose to file chapter 13 instead, this is a choice that you and your bankruptcy attorney should go over.
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