If you have caught yourself in the nasty trap of debts and your
financial situation is not strong enough to pay off all these debts, you
must be into a dilemma of, what to do or what not to do. May be, you
are planning to file for personal bankruptcy. However, do you know that
there are two types of personal bankruptcy and you can choose only one?
The bankruptcy laws have provided two options for the people, willing to
file for personal bankruptcy. The first option is to choose to go for
the straight bankruptcy, i.e. chapter 7 bankruptcy and the second option
is to choose the Wage earner plan i.e. chapter 13 bankruptcy. This
article intends to explain these two options for you and the
circumstances in which you can use them. Let us go exploring.
Chapter 7 Bankruptcy
It
is important for you to understand that chapter 7 bankruptcy is the
most common form of bankruptcy and usually is termed as straight or
liquidation bankruptcy. In general, when people talk about personal
bankruptcy, they have the concept of liquidation bankruptcy in the mind.
Therefore, you must note that the liquidation bankruptcy is not the
only type of bankruptcy. As per the chapter 7 bankruptcy, all your
assets are sold off, under the supervision of the trustee, appointed by
the bankruptcy court. The money thus collected, is then used to pay off
the respective debts of the creditors. The creditors get their share as
per the priority level, as approved by the bankruptcy court. However,
now with the inclusion of the new bankruptcy laws, not everybody can
easily qualify for this type of personal bankruptcy. It is mandatory for
you to pass the means test and go through the US government approved
credit-counseling agency, before you file court petition for chapter 7
personal bankruptcy.
Chapter 13 Bankruptcy
Chapter 13
bankruptcy is commonly known as wage earner plan or reorganization
personal bankruptcy. As the term suggests, as per this type of personal
bankruptcy, your assets are not sold off. Instead, you are asked by the
bankruptcy court to continue with your business venture, and pay the
reduced claims of the various creditors simultaneously. As per this form
of personal bankruptcy, you may be granted your request to pay off the
debts at the rate of 75 cents on each dollar, or may be lesser than
that.