If you have severe debt and the only viable option looming in front of you is to file for bankruptcy, you may want some questions answered. To start with, you must understand the two most common types of personal bankruptcy that people and organizations file – Chapter 7 and Chapter 13.
Chapter 7 involves the 'liquidation' of some of your assets and then sold to pay off your debt. Chapter 13 involves 'reorganization,' in which you keep all of your properties and assets and pay towards the debts within a fixed time period. Before contacting a lawyer, you should know the basics of how these two types of personal bankruptcies work so that you can clearly communicate your situation. Here are some frequently asked questions for you to get some insight into both types.
Who can file for Chapter 7 and Chapter 13 Personal Bankruptcy?
Both individuals and business entities can file for Chapter 7, whereas only individuals (including sole proprietors) can file for Chapter 13.
Are there any eligibility restrictions?
The disposable income must be low enough for your case to clear the Chapter 7 Means Test. In chapter 13, you cannot have more than $419,275 of unsecured debt or $1,257,850 of secured debt (as of April 2019).
How long does it take to get a discharge?
In Chapter 7, it usually takes just three to four months. In chapter 13, you get a timeframe of three to five years to pay off all your debts. You will get a discharge only when you complete all the defined plan payments.
Will I lose all my properties?
You may lose some of your properties in the case of Chapter 7, but you can keep your exempted properties like clothes, tools related to your profession, retirement account, and so on. However, in Chapter 13, you get the opportunity to keep all of your properties (if the court allows), but you will have to pay the unsecured creditors an amount equal to your non-exempt assets.
What are the benefits?
Filing for Chapter 7 bankruptcy helps debtors get a quick settlement by discharging the qualifying debts in a span of three to four months and subsequently get a fresh start. On the other hand, Filing for Chapter 13 bankruptcy will help you keep your properties and give you more than a couple of years to pay off the mortgages and other debts through your earnings.
What are the drawbacks?
The biggest drawback of Chapter 7 is that the trustee can sell your non-exempt properties and not give you enough time to avoid foreclosure or repossession. When it comes to Chapter 13, the drawback is that you have to continue paying monthly payments to the trustees over three to five years, and even one missed payment can have serious repercussions.
How long will this be mentioned on my credit reports?
Chapter 7 remains on your credit reports for ten years, whereas Chapter 13 remains for seven years.
Now that you know the basics of both types of personal bankruptcy, you should be able to make the right move that will improve your financial status. Your next step is to contact a Sacramento bankruptcy attorney to find out how you can get financial relief.