Filing for bankruptcy is a difficult decision, but it can be a necessary step to take if you are struggling with debt. In the United States, there are two main types of bankruptcy: Chapter 7 and Chapter 13. Understanding the differences between these two types of bankruptcy can help you make an informed decision about which one is right for you. Chapter 7 bankruptcy is a type of personal liquidation bankruptcy. In this type of bankruptcy, a court-appointed trustee will sell your non-exempt assets to pay your creditors as much as possible. After this process is complete, any remaining unsecured debts will be eliminated.
The amount of assets you can exempt from this process varies from state to state. In contrast, Chapter 13 bankruptcy is a type of reorganization bankruptcy. This type of bankruptcy allows you to keep your assets, but you must pay your debts over a period of time. This type of bankruptcy is typically used by commercial companies that want to continue operating their business while also repaying their creditors through a court-approved reorganization plan. Under Chapter 13, the debtor has the exclusive right to file a reorganization plan within the first 120 days after the case is filed. The debtor must also provide creditors with a disclosure statement containing all the necessary information so that creditors can evaluate the plan.
Once the court approves (confirms) or disapproves the reorganization plan, the debtor can reduce their debts by repaying part of their obligations and canceling others. They can also rescind onerous contracts and leases, recover assets and rescale their operations to return to profitability. No matter which type of bankruptcy you choose, it's important to remember that nobody has to give up everything they own in the event of bankruptcy. You can keep certain items that are protected by bankruptcy exemptions. These items include those that you need to work and live with. If you are considering filing for bankruptcy, it's important to understand how bankruptcies work in the United States and which type is right for you.
Knowing the differences between Chapter 7 and Chapter 13 bankruptcies can help you make an informed decision about which one is best for your situation.
