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Bankruptcy May Be Your Option

Types of personal bankruptcy: Chapter 7 vs. Chapter 13

Many people do not know that there are different types of bankruptcy. There are six basic types of bankruptcy under the U.S. Bankruptcy Code. They are named for the chapters that describe them. Chapter 11 bankruptcy is one type of bankruptcy you may have heard of before. This type of bankruptcy is used primary by businesses. Although individuals can file for Chapter 11 bankruptcy, it is not very common. The more common type of personal bankruptcy are Chapter 7 and Chapter 13 bankruptcy.

One of the main differences between Chapter 7 and Chapter 13 bankruptcy is income level. Chapter 7 bankruptcy is reserved for people who truly are unable to pay back their debt. In order to be eligible to file for Chapter 7 bankruptcy, you must fall below a particular income level. Typically, this means that your income must be below the median income in Oklahoma for a household of your size. 

The differences in these types of bankruptcy extend much farther than income levels. Chapter 7 bankruptcy allows you to discharge all or part of your debt. It falls under the category of liquidation because your assets can be taken and sold in order to pay back your debt. For example, you may have to return your house or car to the creditor. It is important to remember, however, that not all debt can be discharged. Student loans, child support, and spousal support generally cannot be discharged.

The process of discharging your debt under Chapter 7 usually takes a few months. It is a much simpler and quicker process than filing for Chapter 13 bankruptcy.

Chapter 13 bankruptcy is a type of reorganization bankruptcy. Under this type of bankruptcy, you can repay all or part of your debt under a payment plan. In contrast to Chapter 7 bankruptcy, you likely get to keep your property. Instead, you must make monthly payments to pack off your debt.

This post is intended only to be an overview of the types of personal bankruptcy. Filing for bankruptcy is a very important decision. If you are considering this option, you should have as much information as possible. An experienced attorney can help you understand whether filing for bankruptcy is right for you.

Source: Uscourts.gov, “Process – Bankruptcy Basics,” Accessed July 27, 2015 

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