What Are The Bankruptcy Options?
The consequence of bankruptcy is that you lose almost everything you own to pay
off as much as possible of your debts. This means that your debts will be wiped
out and you will have to start from scratch to build a new life. This will include
trying to get credit with a bad credit record.
Considering bankruptcy should be a last resort. Before you choose the type of bankruptcy,
consider one of these alternatives in the first instance:
- try to reduce your expenditure or increase your income so you can try to repay your
debts
- explore the possibility of a debt consolidation loan
- pursue a Debt Management Plan through credit counseling
There are two common types of bankruptcy that can be filed: Chapter 7 and Chapter
13.
What Is The Difference Between Chapter 7 And Chapter 13 Bankruptcy?
Chapter 7 bankruptcy is the more severe and is basically liquidation whereby virtually
all assets are sold. A debtor surrenders all property to a case attorney. The case
attorney then converts the property into cash to pay back the creditors. Certain
property known as “exempt assets” can be protected from seizure.
Chapter 13 bankruptcy is essentially an extended repayment arrangement known as
an Adjustment of Debts. It is intended for individuals who do want to pay back their
debts but need an extended period of time in which to pay the debts back. Fortunately
the debtor does not have to sell their assets but makes monthly payments to the
creditors. The amount that they must pay back is decided on how much
they can afford after the necessary living expenses have been taken into account.
Both types of bankruptcy end with a bankruptcy discharge at the point when the debtor’s
debts are wiped out and the debtor starts over.
Usually a Chapter 7 bankruptcy is filed by someone with limited or no assets. So
with no assets it will be a relatively simple procedure. But if the debtor has sufficient
income to repay at some of the debts, Chapter 13 may be a better option.
A typical Chapter 7 bankruptcy is usually competed in a relatively short space of
time, often a few months. The debtor does not pay anything to the unsecured creditors,
not unless the bankruptcy court requires the debtor to liquidate non-exempt assets.
For a Chapter 13 bankruptcy, the process can take much longer as the debtor may
be required to repay some or all unsecured debt back through a court over a period
of up to five years. Upon completion of the court-ordered repayment programme, any
unsecured debts that are not paid are discharged.