The two most common forms of bankruptcy are Chapter 7 and Chapter 13. Chapter 7, known as "straight bankruptcy," provides for complete liquidation of debt. In return the creditor has to surrender all his non-exempt assets via liquidation and ensuing distribution to the creditors. Chapter 13 bankruptcy also called "reorganisation,"allows the debtor to reorganise his debt structure over 3-5 years. To be eligible for Chapter 13 the creditor must prove to the court that he has sufficient income to repay his debts. If approved, he must submit a detailed payment plan.
Chapter 7 Bankruptcy is most often used for debtors who have few property assets except for their basic furniture and house necessities, and who have little money remaining at the end of the month, or may even have trouble meeting basic expenses.
The advantages of Chapter 7 bankruptcy are that it provides for total discharge of debts and the procedure moves rapidly. Once the debtor has filed bankruptcy, his creditors cannot collect the debt from him directly.
To qualify to file Chapter 7 a debtor must pass the means test, which determines if his entire income is under a certain specified limit.
Chapter 13 bankruptcy is applicable to debtors who have large amounts of equity, have a monthly income and other assets, but are incapable of keeping up with their monthly credit payments. Debtors accepted for a Chapter 13 bankruptcy agree to work out a 3-5 year plan (longer in the future), and will cooperate with a credit counsellor to pay their debts. Monthly payments are made through the "debt trustee," who apportions the money to creditors according to a predetermined dispersal plan. Payments in this form of bankruptcy are made from accessory income that is left over after basic expenses are taken care of, food, clothing, shelter, etc. To be eligible for Chapter 13 bankruptcy a debtor must have unsecured debts below $360,475 and secured debts less than $1,081,400.
In both Chapter 7 and Chapter 13 the debtor must obtain mandatory credit counselling within 180 days prior to filing bankruptcy with the courts. The counselling is designed to give debtors a chance to solve their financial problems themselves and with the help of the course counsellors, without the need to go to court. In addition this course, as well as additional courses that people in bankruptcy must take, aims to teach people in debt how to manage their finances so they won't go into debt again after they come out of bankruptcy.
Chapter 7 Bankruptcy is most often used for debtors who have few property assets except for their basic furniture and house necessities, and who have little money remaining at the end of the month, or may even have trouble meeting basic expenses.
The advantages of Chapter 7 bankruptcy are that it provides for total discharge of debts and the procedure moves rapidly. Once the debtor has filed bankruptcy, his creditors cannot collect the debt from him directly.
To qualify to file Chapter 7 a debtor must pass the means test, which determines if his entire income is under a certain specified limit.
Chapter 13 bankruptcy is applicable to debtors who have large amounts of equity, have a monthly income and other assets, but are incapable of keeping up with their monthly credit payments. Debtors accepted for a Chapter 13 bankruptcy agree to work out a 3-5 year plan (longer in the future), and will cooperate with a credit counsellor to pay their debts. Monthly payments are made through the "debt trustee," who apportions the money to creditors according to a predetermined dispersal plan. Payments in this form of bankruptcy are made from accessory income that is left over after basic expenses are taken care of, food, clothing, shelter, etc. To be eligible for Chapter 13 bankruptcy a debtor must have unsecured debts below $360,475 and secured debts less than $1,081,400.
In both Chapter 7 and Chapter 13 the debtor must obtain mandatory credit counselling within 180 days prior to filing bankruptcy with the courts. The counselling is designed to give debtors a chance to solve their financial problems themselves and with the help of the course counsellors, without the need to go to court. In addition this course, as well as additional courses that people in bankruptcy must take, aims to teach people in debt how to manage their finances so they won't go into debt again after they come out of bankruptcy.
