Article Categories
» Arts & Entertainment
» Automotive
» Business
» Careers & Jobs
» Education & Reference
» Finance
» Food & Drink
» Health & Fitness
» Home & Family
» Internet & Online Businesses
» Miscellaneous
» Self Improvement
» Shopping
» Society & News
» Sports & Recreation
» Technology
» Travel & Leisure
» Writing & Speaking

  Listed Article

  Category: Articles » Finance » Bankruptcy » Article
 

Bankruptcy: What's the difference between Chapter 7 and Chapter 13?




By Dan Johnson

When consumers contemplate the option of bankruptcy generally, the remedy they are specifically referring to is chapter 7 bankruptcy. The effect of the filing is to discharge someone saddled with debt from having to pay debts no longer secured with a valid lien. It also has the added benefit of serving as a court order to creditors (or their collection agencies) to stop hassling you through telephone calls, letters, and personal contact in an effort to get you to pay the debt. But what, in effect, does that mean for you the borrower?

Chapter 7

Filing for chapter 7 bankruptcy does not mean that immediately all of your debts are eliminated in their entirety. Rather, secured debt must be still be dealt with. It does mean, however, that commonly unsecured debts like credit card bills and medical expenses do not have to be paid back. But getting off the hook here does not come without costs. Rather, filing chapter 7 often means the necessary liquidation (selling off) of most of your personal property. While there are limitations to what can be confiscated by creditors, (such as your home under the homestead protection), expect that creditors will sell off most of your valued possessions to pay part of your debts to them. In addition, your credit rating will be devastated by this filing. In filing chapter 7 bankruptcy, you have essentially proclaimed to the world that you are no longer worthy to be trusted with future credit. That plays out practically insofar as it becomes virtually impossible to get a mortgage for a new home, a car loan, a credit card, and even limits very small forms of credit like appliance financing and at times payday loans. Because of the many drawbacks of filing for chapter 7 bankruptcy, many individuals in need of debt relief look for other options.

Chapter 13

One such option is chapter 13 bankruptcy. Chapter 13 filing means quite simply that you are restructuring your debt by negotiating with your creditors and establishing a plan to pay them off over the course of three to five years. So, this is a formal declaration that you will and have worked with creditors so that they will get their money, only at a slightly slower rate than they might have wanted. By promising to pay off your debts, you are allowed to keep valuable personal property such as your home and car. In a similar way, taking this step can limit some of the damage to your credit score that is incurred with filing for Chapter 7 as opposed to Chapter 13. Typically the arrangement reached with creditors is to have you pay your regular monthly payments, plus an additional amount that over time allows you to get caught up on your payments over time.

There are both benefits and costs to whichever bankruptcy approach you decide to take. On the one hand, filing Chapter 7 offers you the freedom to be rid of the heavy debt that is currently hanging over you, while Chapter 13 offers you only the chance to restructure that debt to be more manageable. But on the other hand, filing Chapter 7 also means the liquidation of almost all your valuables as well as the total devastation to your credit rating, whereas filing Chapter 13 allows you to keep many of your possessions while keeping your credit score intact.
 
 
About the Author
Dan Johnson enjoys writing about bankruptcy. Visit http://www.bankruptcyreader.com/ to learn more.

Article Source: http://www.simplysearch4it.com/article/14756.html
 
If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/14756.html" as shown above and make it hyperlinked.



  Some other articles by Dan Johnson
The Skinny on 1031 Exchange: Maximizing Profits by Minimizing your Tax Liability
A 1031 exchange refers to Section 1.1031 of the Internal Revenue Code which was passed in 1990. Normally, when you sell all real and personal property, the tax code requires ...

Student Loan Consolidation-The Good, Bad, and the Ugly
With tuition costs rising across the country, it has become increasingly necessary for college students to take on debt in an effort to get their ...

Debt relief 101: Understanding your options and avoiding the scams
The total consumer debt in the United States has ballooned to over two trillion dollars a full 100% greater than it was just a decade ago. As a result ...

Homeowners insurance: What's covered, what's not, and what to look for
Individuals planning on purchasing a home spend weeks if not months picking the perfect neighborhood, floor plan, and then home before ...

Payday loans: Why they are bad and how to make the best of them
Almost everywhere you look these days you can find advertisements for payday loans. And like other financial products, you can usually conclude that the more a product is ...

Term Life Insurance: The differences between Term and Whole Life policies
Life Insurance quite generally is a policy whereby you pay a company a premium so that if you die while covered your descendents receive financial ...

  
  Recent Articles
Five Ways How A Credit Monitoring Service Can Help Post-Bankruptcy Individuals Rebuild Their Credit
by Dulce Azogue

Dead People Cannot File Bankruptcy
by Victoria Ring

Get To Know The Bankruptcy Filling Process If This Is Your Option
by Cornie Herring

What Are The Consequences of Filing For Bankruptcy?
by Cornie Herring

Personal insolvencies are at record levels across the UK: Which way for the debtor?
by Martin McAllister

Smart debt recovery with alternatives to bankruptcy!
by Kirthy Shetty

What are your alternatives for filing bankruptcy?
by reethi rai

Do Bankruptcy Alternatives Work?
by Susan Davis

Can You Choose the Type Of Bankruptcy Filling?
by Cornie Herring

6 Steps to Take before Bankruptcy
by Cornie Herring

5 Easy Steps to Rebuild Your Credit after Bankruptcy
by Cornie Herring

Closer Look at Bankruptcy
by Gina James