Chapter 7 And Chapter 13 Bankruptcy - Which Is More Appropriate?

Chapter 7 And Chapter 13 Bankruptcy - Which Is More Appropriate

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In the USA, poorly managed debt and unforeseen negative financial events are all too common occurrences. Many people are forced to consider filing for bankruptcy protection in order to seek debt relief, avoid mortgage foreclosure or property repossessions, and escape deficiency liability.

It's important to note that the primary reason for the existence of bankruptcy law is to give people (and businesses) a "second chance". Rather than a person being forever mired in an untenable financial situation, bankruptcy provides a means to financially extricate themselves from such situations and affords them an opportunity to "start anew".

Let's take a look at the two most common forms of bankruptcy, namely, Chapter 7 and Chapter 13. (The term "chapter" refers to the fact that these types of bankruptcies are found in those specific chapters of the bankruptcy law).

Chapter 7 Bankruptcy:

This is the simplest and quickest form of bankruptcy filing. It is predominantly utilized by single or joint filers who's income levels are below the regional threshold required to file under this chapter. Most Ch. 7 filers have minimal assets or cash, and find themselves unable to meet their day to day outstanding financial obligations. The Arizona statutes define the assets (and dollar values) that are exempt in a Ch. 7 proceeding. These exempt assets make provision for the debtor to keep some furniture, clothing, and equity in their vehicle. In a Ch. 7 bankruptcy, all personal assets aside from those basic necessities (and exempted under state law) are turned over to the bankruptcy court appointed Trustee who is responsible for liquidation of non-exempt assets for distribution to unsecured creditors on a pro-rata basis. During the bankruptcy period, creditors are legally restrained from further contact with the debtor. At the end of the bankruptcy, a discharge is granted legally closing the proceeding. Once this occurs, the debtor can restart their financial lives removed from the onerous burden of insurmountable unsecured indebtedness. As a result of filing a Chapter 7 bankruptcy, the debtor's credit rating may be negatively affected for several years into the future.

Chapter 13 Bankruptcy:

This form of bankruptcy protection is usually chosen by filers that are wage earners and have assets they would like to retain. The total secured and unsecured debt for the debtor must be below federally prescribed levels to "fit into" a Ch. 13 bankruptcy. Most Ch. 13 filers have regular monthly income, and can pay basic sustaining expenses but are unable to maintain other debt interest and/or debt repayment commitments. There may be a possibility to strip second liens from properties under certain conditions in a Ch. 13. With a Ch. 13 bankruptcy, it is possible for debtors to keep assets, including those beyond the normal asset exemptions provided by law, and to pay off re-negotiated debt levels with creditors over a period of three to five years. In this bankruptcy process, debt obligations are re-examined in the context of the creditor's total financial picture and in conjunction with all creditors. A plan is then developed and submitted to the court whereby the debtor can make certain agreed upon payments to creditors through the court appointed Trustee during the agreed upon timeframe. During the planned re-payment period, creditors are not permitted to contact the debtor. At the end of the successful repayment plan, the debtor is free from all creditor obligations. As is the case with a Chapter 7 bankruptcy filing, the debtor's credit rating may be negatively affected for several years into the future.

When well planned & executed, a bankruptcy can be a temporary, not a permanent, setback. Scottsdale Law Group understands how intimidating the bankruptcy process may seem and the stress that overwhelming debt can cause to individuals and their families. Working together as a team, Scottsdale Law Group and the debtor can successfully navigate the bankruptcy process, attain the debt relief that the law makes available to everyone, and begin the process of rebuilding the debtor's credit and securing their financial assets. For more information about Scottsdale Law Group, please visithttp://www.scottsdalelawgroup.com.

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