Personal Bankruptcy - Choosing Chapter Seven Or Chapter Thirteen
February 23, 2008 – 4:17 amIn the United States, bankruptcy laws are created and amended by the federal government. The Bankruptcy law courts are responsible for administering these laws. The aim of the courts is to mediate in a dispute where one person owes other people or businesses a sum of money. The courts will try to retrieve as much money as possible from the debtor and distribute it to the creditors. However it will do this in a manner that doesn’t completely ruin the debtor and allows him/her to recover with prudent financial management. The estimate is that around a million people will go bankrupt the US this year. They will think about filing for bankruptcy if they cannot pay their debts. This article will discuss the options available to them if they want to file for personal bankruptcy.
Filing Under Chapter Seven
This is the most common way that people file for bankruptcy. Chapter 7 involves the bankruptcy court liquidating your assets and paying back your creditors. You are responsible for drawing up your list of assets. In most cases this does not include items such as your home or car. A trustee that is appointed by the court will be responsible for selling your assets and paying off your creditors. Chapter 7 costs around $300 for an administration fee. It can only be filed every seven years by one individual.
Filing For Chapter 13 Bankruptcy
Chapter 13 differs from chapter 7 in that it does not aim to clear a person from their debts but merely to set up a structure so that they can pay off the debts free from being harassed by creditors. The courts will help the debtor and creditors reach an agreement about how the debtor will pay off his/her debts. This will be some form of payment plan that will last for so many years and be a sum of money each month. The debtor will give this money to a court appointed trustee who will then give the money to the creditors. In this way the debtor will not have to liquidate their assets but work towards paying off the debts over a period of time.
Although both these forms of personal bankruptcy allows the debtor to discharge his/her debts there are some criteria that must be considered before going for each one. In the case of chapter 13, you cannot have a debt that exceeds two hundred fifty thousand dollars. This debt must be unsecured and any other debts that are secured should not be more than seven hundred and fifty thousand dollars. In chapter 7, personal assets are only exempt from liquidation in the following cases. Your home is exempt if you owe more than 80% of the value as a mortgage. Your car is exempt if it is worth less than $2,000.
Thus it is important to know what you are getting yourself into before going for one or the other. You should know all the criteria for each chapter and the ramifications should you decide on one. People are often advised to use a bankruptcy lawyer in this situation because they understand the laws and can give you good advice on which chapter best suits your situation best.
Tags: Bankruptcy
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