Bankruptcy: Chaprer 7 And Chapter 13

There are two major types of bankruptcy that apply to consumers: Chapter 7 and Chapter 13. Chapter 7 cancels your debt obligations, but the bankruptcy court might sell some of your property to pay off your creditors. Chapter 7 Bankruptcy is used to remove, or discharge, primarily the unsecured debts such as credit card debt or debts caused due to medical emergencies. However, Chapter 7 does not help you in wiping off the secured debts, such as mortgage and auto loans.

In Chapter 13, you have to repay all or a part of your debt through a three- to five-year repayment plan. At the time of filing, you will have to also submit a repayment plan to the court. Once you submit the plan, you should start making payments to the court, which in turn will pay your creditors.

What are the advantages and disadvantages of Chapter 7?

Advantages: The main purpose of a Chapter 7 bankruptcy is to give you relaxation from paying his/her debts. Once the bankruptcy court notifies your creditors about your filing then no creditors according to the bankruptcy law can approach you in any means to collect their money. This means that the creditors can not call, leave messages, or mail you notices when they are notified of your intentions. Creditors can be penalized by the court system if their efforts continue. For some debtors, a Chapter 7 bankruptcy indicates a new lease on their financial life.

Disadvantages: However, there are possible negative consequences of filing a Chapter 7 bankruptcy. The worst effect of a Chapter 7 bankruptcy is that it completely ruins your credit history. A Chapter 7 bankruptcy remains on your credit file for the next 10 years. It definitely has a negative impact on your applications for mortgages, lines of credit, credit cards, vehicle purchases and leases, and other credit-related applications.

Once you’ve filed for bankruptcy under a Chapter 7, you are not allowed to file a petition under a different chapter.

Certain debts are not discharged in Chapter 7. These debts include student debt, most taxes, alimony, and child support, among others.

What are the advantages and disadvantages of chapter 13?

Advantage: The biggest advantage for Chapter 13 bankruptcy is that it assists you in managing your debt load at the same time it also allows you to retain your assets. For example, if you are having troubles in making your mortgage payments, then a Chapter 13 bankruptcy can give you an opportunity to make those payments, and avoid foreclosure on your property. With the help of Chapter 13 repayment plan you have to repay less than you owed.

Disadvantages: A Chapter 13 bankruptcy is restricted to people who have a regular income. There are few other restriction like to file for Chapter 13, an individual must have less than $269,250 in unsecured debt (such as lines of credit or credit cards) and less than $807,750 in secured debt (your vehicle or home).

When a consumer decides to file for bankruptcy, whether it is Chapter 7 or Chapter 13, according to the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) the consumer is required to attend credit counseling sessions. According to the law, anyone filing bankruptcy must receive consumer credit counseling from an approved credit counseling agency six months prior to filing. The session will not only help the debtor in figuring what went wrong, but it will also help him in finding new ways of budgeting, managing finances efficiently, paying bills, and spending the funds so that he does not run into the same financial difficulty in the future.

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