If you are considering using personal bankruptcy to get out from under an unmanageable debt load or to stop home foreclosure, it is very important to understand that different types of personal bankruptcy options may be available to you.
At McGinn Law Offices, Inc., we work with our clients to make sure they understand all the important differences between the two types of bankruptcy — Chapter 7 and Chapter 13 — so that they can make a smart and well-informed decision about which course of action will be best for their specific situation.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is sometimes called liquidation bankruptcy. You must have a certain debt-to-income ratio in order to qualify for Chapter 7 bankruptcy. If your income is too high when compared to your debt, you may still qualify for Chapter 13 bankruptcy.
If you qualify for Chapter 7 bankruptcy, many of your debts can be completely discharged, which means that you will not have to repay those debts. You may be able to keep some personal property and possibly real estate, depending upon where you live and the applicable law.
The bankruptcy court will appoint a trustee to take over your property. Property of value that is not exempt or excludable may be sold or turned into money to pay your creditors.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often called the wage earner’s bankruptcy plan or a debt reorganization plan. Under Chapter 13 bankruptcy, the bankruptcy court reorganizes your debt payments and you sign a formal document agreeing to pay a certain amount of your income to your creditors every month. The court must approve your repayment plan and your budget.
As with Chapter 7 bankruptcy, a trustee is appointed to collect the payments from you, pay your creditors, and make sure you live up to the terms of the repayment plan. Chapter 13 bankruptcy may sometimes be used as a tool to save a home from foreclosure proceedings.