Means Test
To qualify for Chapter 7 bankruptcy, individuals must pass a means test, which evaluates their income and expenses to determine eligibility.
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Understanding Bankruptcy: Chapter 7 and 13 |
Chapter 7 Bankruptcy: Liquidation
First
Second
Liquidation
A court-appointed trustee sells non-exempt assets to repay creditors. Exempt assets, such as a primary residence and essential personal belongings, are protected from liquidation under state or federal law.
Debt Discharge
Once the liquidation process is complete, remaining eligible debts are discharged, providing a fresh financial start for the individual.
Overview
Chapter 7 bankruptcy is often suitable for individuals with limited income and significant unsecured debts who seek a relatively quick resolution to their financial challenges.
Chapter 13 Bankruptcy: Repayment Plan
Chapter 13 bankruptcy, also known as reorganization bankruptcy, involves the creation of a court-approved repayment plan to repay creditors over a period of three to five years. Unlike Chapter 7, Chapter 13 allows individuals to keep their assets while restructuring their debts. Here’s how Chapter 13 works:
First
Repayment Plan
The individual works with a bankruptcy trustee to create a repayment plan based on their income and expenses. The plan typically prioritizes essential expenses and proposes a manageable repayment schedule for creditors.
Debt Adjustment
The repayment plan may include the repayment of secured debts (such as mortgage or car loans) and a portion of unsecured debts (such as credit card debt). Some debts may be discharged at the end of the repayment period if they are not fully repaid.
Court Approval
The repayment plan must be approved by the bankruptcy court, and the individual must adhere to the plan's terms to successfully complete Chapter 13 bankruptcy.
Overview
Chapter 13 bankruptcy is often suitable for individuals with a regular income who seek to retain their assets while repaying their debts over time.
Conclusion
Bankruptcy can be a complex and emotionally challenging process, but Chapter 7 and Chapter 13 bankruptcy offer viable solutions for individuals facing overwhelming debt. Whether seeking a fresh start through liquidation or restructuring debts through a repayment plan, understanding the differences between these chapters is essential for making informed financial decisions.
If you're considering bankruptcy, it's crucial to consult with Pauseforeclosure's expert advisors to explore your options and determine the best course of action based on your unique financial circumstances.
Remember, bankruptcy is not a one-size-fits-all solution, and seeking professional guidance can help you navigate the process and pave the way toward a brighter financial future.