What are the major differences between filing a Chapter 7 bankruptcy and a Chapter 13? When an individual has a significant amount of debt, it may be very overwhelming and even a little discouraging. It can be hard for them to keep up with their payments as their debt and interest continue to increase. Eventually, they may not be able to pay at all. In the event that they cannot continue to pay, bankruptcy may be able to provide them some relief. Bankruptcy is a legal process that can be pursued to manage and possibly discharge the obligation to pay back debt. For individuals considering bankruptcy filing in Troy, Alabama, there are different ways that it can be done. The most common types, or chapters, of bankruptcy that are sought after are known as Chapter 7 and Chapter 13 bankruptcies.
A Chapter 7 bankruptcy can be filed by an individual, a corporation, or some other types of business entities. Chapter 7 bankruptcies involve the liquidation of the debtor’s (the person who is in debt and owes money) assets. Liquidating assets is the process of selling the debtor’s property in order to use the proceeds and pay back their debt. Assets can be anything of value like land, automobiles, or stocks. Other assets may be exempted, or there may be some that are not very valuable, if at all, which will likely not be sold. A Chapter 7 bankruptcy discharges your obligation to repay unsecured debts.
However, secured debts can be dealt with in Chapter 7 bankruptcies in the following two ways: (1) the secured interest can be given back to the creditor (the person that the debtor owes money to), which releases the debtor from repayment, or (2) the debtor can keep the secured interest and sign an agreement with the creditor, which allows the debtor to continue making their fixed, monthly payments until the debt is fully repaid. Chapter 7 bankruptcies are only available to select debtors because they depend on the debtor’s income. If their income does not meet certain criteria, then they cannot file for Chapter 7 bankruptcy. A Chapter 7 bankruptcy is usually completed in about four to six months, which is much faster than a Chapter 13 bankruptcy.
Meanwhile, a Chapter 13 bankruptcy can only be filed by an individual or by two spouses that are filing jointly, and this type of bankruptcy involves the debtor paying off their debt based on a payment plan. These payment plans typically range from three to five years. They can be structured to best fit your needs, but they are usually monthly payment plans. Chapter 13 bankruptcies give the debtor the opportunity to have their interest rates lowered while a Chapter 7 bankruptcy does not. Also, a Chapter 13 bankruptcy does not depend on a certain income, so it can be available to more people than a Chapter 7 bankruptcy. When you contact a local bankruptcy attorney in Prattville, or wherever you live, they can run the numbers and see what your payment plan would be.
Debt can be drastically crippling. It can affect almost all aspects of life making it hard, or even feel impossible, to overcome. Thankfully, there are measures like bankruptcy that were put in place specifically for the purpose of providing debt management and relief. The bankruptcy process, as well as each type of bankruptcy, may have positive and negative aspects, so it is very important that you choose the type of bankruptcy that is best for you and your specific situation. If you are considering filing for bankruptcy, contact us today, and we will connect you with one of our experienced Montgomery bankruptcy attorneys to help you through the process.
Attorney Steven A. Harris regularly blogs in the areas of family law, bankruptcy, probate, and real estate closings on this website. Mr. Harris tries to provide informative information to the public in easily digestible formats. Hopefully you enjoyed this article and feel free to supply feedback. We appreciate our readers & love to hear from you!