There are two varieties of bankruptcy for individuals who require assistance to regain their financial footing. A chapter 13 bankruptcy is designed for those who can repay their debts, but have fallen behind and need the court's assistance to catch up and resume a regular payment schedule. A chapter 7 bankruptcy is regarded as a complete bankruptcy in which the debtor is unable to repay any debt and is legally released from responsibility.
A chapter 13 involves establishing a payment plan for all outstanding debt and making monthly arrangements to pay the court trustee. Once a creditor files a lawsuit, all collection efforts must cease until the court has rendered a decision. Creditors may contest the filing at the meeting of creditors, where you and the creditors meet with the trustee to discuss the situation. The first monthly payment is due 30 days after the filing date, regardless of the case status. This demonstrates to the court that you are able and willing to repay the debt. In most Chapter 13 cases, you can retain your assets unless they are used as collateral for a debt you wish to discharge.
A chapter 7 discharges all outstanding debts based on your current income and assets. Keeping assets in a Chapter 7 bankruptcy is more problematic than if you chose a Chapter 13 repayment plan. In general, you can retain your home or car if you agree to continue making payments on items used as collateral for a loan. This is known as reaffirming the debt. Any assets you own that are not encumbered by debt are scrutinized more closely by the court as a means to liquidate for cash to apply to your debts.
The best variety for you will depend on your current income, assets, and debt load. Both types are founded on a means test that was developed specifically for your state. If you find yourself in a difficult financial situation, discuss your options with a bankruptcy attorney.""
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