Declaring bankruptcy is a declaration of one's inability to repay loans or debts. It's also a request for legal assistance and protection to the bankruptcy court. After coping with Great Britain's oppression and debtor's prisons, bankruptcy continues to exist in order to provide Americans with a """"Fresh Start"""".
There are now numerous types of bankruptcy designed for use in various circumstances. These various varieties of bankruptcy are referred to as ""chapters"" after the variously numbered chapters of the bankruptcy statutes. Chapter 7 Bankruptcy and Chapter 13 Bankruptcy are two of the most commonly filed types of personal bankruptcy.
What is Chapter 7 Insolvency?
Chapter 7 is available to individuals. Under this chapter, a person's assets exceeding a certain value are sold and the proceeds are used to repay creditors. In exchange for the sale of excess assets, Chapter 7 bankruptcy typically erases a person's credit history. Typically, the objective is to obtain a Fresh Start and possibly the chance to reestablish responsible credit. A notation may remain on a person's credit report for approximately ten years. Therefore, when contemplating bankruptcy, reestablishing credit should always assume a secondary or distant position. The promise of bankruptcy is not to obtain new credit, but to alleviate the overwhelming pressure of old credit.
What is Chapter 13 Insolvency?
Another prevalent form of bankruptcy is Chapter 13. Individuals are able to retain the majority, if not all, of their assets while their debts are reduced to levels that are affordable. Individuals who need to file Chapter 13 bankruptcy must have a fixed and stable income in order to affordably repay their debts. Filers will be given a period of time to repay their debts and regain financial stability. The repayment period for the majority of individuals is between three and five years. Chapter 13 bankruptcy is complex, and a knowledgeable bankruptcy attorney can assist with the determination.
How do Chapter 7 and Chapter 13 Bankruptcy Differ?
Both forms can be filed by individuals, and both have a negative impact on a person's ability to obtain credit in the future; however, there are important distinctions to be aware of. The primary distinctions are the ownership of property and assets and the duration of court involvement. Under Chapter 7 Bankruptcy, individuals surrender their rights to excess property and assets and are able to swiftly emerge from bankruptcy. In a Chapter 13 filing, the individual will typically retain ownership of his or her assets, but will be subject to court supervision for an extended period of time. In addition, the individual will collaborate with the court to develop affordable repayment plans for paying off debts over time. The speedier and more decisive nature of Chapter 7, also known as Straight Bankruptcy, and the longer but more controlled court involvement periods are the primary distinctions between these two popular forms of bankruptcy.
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