What are the different types of bankruptcies?

Fort Worth residents who are searching for needed debt relief should understand the differences between Chapter 7 and Chapter 13 bankruptcies.

Fort Worth consumers who find themselves struggling with unmanageable levels of debt can understandably consider bankruptcy as a way to get a fresh start. Bankruptcy may offer the assistance needed to debt-laden people by either eliminating some debts or by consolidating them into payment plans. This distinction forms a primary difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy.

Chapter 7 bankruptcy

Chapter 7 bankruptcies tend to be more common among most consumers. This may be due in part to the fact that they are simpler and take less time to execute. According to the United States Courts, a Chapter 7 bankruptcy may be able to be completed in as little as three months.

Persons with debts that are predominately unsecured may do well to choose a Chapter 7 bankruptcy over a Chapter 13 plan. This is because in a Chapter 7 plan, debts are discharged but any secured collateral may be lost in the process as one way of repaying some of the debt that is owed. Unsecured debts include things like credit card balances and medical expenses. Secured debts include things like automobile loans and mortgages. Because assets can be sold to repay bills, a Chapter 7 plan is sometimes called a liquidation bankruptcy.

It is important for consumers to realize that not all types of debt may be included in a Chapter 7 bankruptcy. The American Bankruptcy Institute explains that items like child support orders or student loans are outside of the scope of a Chapter 7.

Chapter 13 bankruptcy

Consumers who have active loans for homes, vehicles, or other assets and who do not want to lose those assets may do well to consider a Chapter 13 bankruptcy. In this type of plan, debts are not immediately discharged but are instead restructured under a debt consolidation repayment agreement.

Chapter 13 plans last from 36 to 60 months. During this time, consumers make monthly payments to a trustee. The trustee then makes payments to debtors as per an agreed-upon plan. No assets are utilized in the repayment of debts. Consumers should know that mortgages cannot be incorporated into a Chapter 13 plan. While in an active Chapter 13 bankruptcy, consumers must continue to make mortgage payments.

Because this type of plan requires some repayment of debts, consumers may hear it referred to as the wage earner's plan. In addition to having assets to be saved, consumers choosing this route will need to have an income level sufficient enough to make the monthly plan payments.

Recommendations for debtors

Before making a final decision about bankruptcy, Texans should consult with an experienced bankruptcy attorney. There may be unique situations that make one plan a better fit for someone than another plan. Getting the right information from someone who works with the bankruptcy laws every day is the best way to be sure that the right choice is made.