When facing a large amount of debt, filing for bankruptcy can give you the opportunity to enjoy the financial fresh start that you need and deserve. Unfortunately, many people fail to understand the differences between Chapter 7 and Chapter 13 bankruptcy. As a result, many of these individuals will file the wrong type of bankruptcy petition and ultimately fail to enjoy the debt relief they so desperately need. Taking the time to review the information below can prevent you from making this same mistake.
How Bankruptcy Impacts Your Debts
The impact that a bankruptcy settlement will have on your debts is without a doubt one of the most important things for you to consider before filing your petition with the court. While many people assume that Chapter 7 and Chapter 13 bankruptcy will impact their debts in the same way, the truth is, these two forms of bankruptcy tackle your debt problems in very different ways.
Chapter 7 bankruptcy addresses the issue of unsecured debt. This is debt that was accumulated without the need for collateral, such as your credit card bills, medical bills, and student loans. After demonstrating to the court that you are unable to reasonably repay these debts, you will have the opportunity to discharge the debts. If the majority of your existing debts are unsecured, this type of bankruptcy may allow you to walk away virtually debt free.
Chapter 13 bankruptcy on the other hand, addresses the issue of restructuring both unsecured and secured debts. Rather than discharging these debts, this type of bankruptcy will simply try and make it easier for you to repay the debts over time. By developing a more reasonable repayment plan, a Chapter 13 bankruptcy settlement attempts to help you repay your debts without suffering the financial consequences of late payments or collection efforts.
How Bankruptcy Impacts Your Assets
Filing for bankruptcy not only impacts your debts, but it can also impact your assets.
When filing for Chapter 13 bankruptcy, the impact on your assets will be minimal. Since no debts are discharged as part of these bankruptcy proceedings, there is no need to sell off any of your assets in order to cover your debt. However, the court may still recommend asset restructuring as part of your financial plan in order to help you succeed in repaying your debts.
Chapter 7 bankruptcy will have a much different impact on your assets. This is because along with the right to discharge your debts will come limits on the number of assets you can have during the course of your bankruptcy. In addition to limiting the type of assets you can possess, the law will limit the value of each asset that you have. If your assets exceed this maximum value, you will be required to surrender the asset so that it can be sold to cover a portion of your debt.
Fully understanding the way that both Chapter 7 and Chapter 13 bankruptcy impact your debts and assets can be difficult and confusing. Consequently, you should never file a bankruptcy petition without first consulting a qualified bankruptcy attorney in your area to ensure you are filing the right type of petition for your needs.
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