There are many different types of bankruptcy. Chapter 7 and Chapter 13 are the two most common ones. When one is considering filing for bankruptcy, one must decide which type of bankruptcy filing is right for them.
Which Type of Bankruptcy is Right?
Filing for Chapter 7 bankruptcy is a way of eliminating existing debt. When one files for this type of bankruptcy, one essentially says it’s impossible, under any circumstances, to pay existing debt. A court, if the request is granted, will then grant a debtor protection from creditors by more or less wiping the debtor’s slate clean and granting a new start. Many private individuals choose this type of filing because it’s the simplest solution to eliminating debt. However, it does come with certain risks to one’s assets. It’s within the power of the court to determine the value of one’s belongings and then rule for some assets to be liquidated in order to payback some of the money owed to creditors. However, bankruptcy exemption laws do protect much of one’s property in bankruptcy.
Rather than eliminating all debt, Chapter 13bankruptcy is simply a way of having the court intervene between debtors and creditors to work out a payment plan. This type of filing can be beneficial because it provides the opportunity to work their way out of debt and prevents assets from being sold.