Should I File For Chapter 7 Or 13 Bankruptcy?

You may have been going through a bad patch recently and have lost the ability to repay all of your debt

. While this may seem like a futile situation, law makers have realized that good people sometimes fall into situations out of their control. Folks sometimes need help to get their lives back in order. For this reason bankruptcy law was created.

Bankruptcy law falls into three broad categories. Those categories are Chapters 7, 11, and 13. Chapter 11 is used by businesses that need to reorganize. Individuals who lose their ability to repay their debt generally file for either Chapter 7 or Chapter 13. Assuming you are not a business owner, you may be asking what the difference between Chapter 7 and 13 is.

Chapter 7 bankruptcy is sometimes simply referred to as liquidation. It is for individuals who are in a position in which their expenses far exceed their income and paying back their debt is literally impossible. Say for example, you have fallen sick or become badly injured. You may have both lost your ability to work, but your worker's compensation does not provide you enough money to pay back expensive medical bills and other debt you accrued. This would be a situation in which you should possibly file for Chapter 7.

If successful, a judge could grant you something called an "automatic stay." This automatic stay, with a few exceptions, will prevent creditors from trying to collect from you even including the IRS. You may also eventually be able to receive a "final discharge". This will prevent creditors from ever trying to collect on debt you accrued before you filed for bankruptcy.

The second kind of bankruptcy for individuals is Chapter 13. This differs from Chapter 7 in that it's for individuals that do have income that exceeds their household expenses. An example would be someone who has fallen behind on their mortgage payments. Due to the current terms of their mortgage, they will end up losing their home if they do not file for Chapter 13 bankruptcy.

Under Chapter 13, the judge will consider all the debts that person owes, including the mortgage payments, while reorganizing those debts into a new payment plan. Since the goal of Chapter 13 bankruptcy is to help the debtor get back on their feet again, the judge will make sure to reorganize the debts into a payment plan the debtor will be able to pay back. These plans typically last somewhere between 36 to 60 months in length. During that period, the creditors will be forced follow the judge's orders and abide by the new plan.

The debtor will be able to both pay back her debt as well as keep her home. If you think you should file for Chapter 7 or 13 or are not sure which to choose, you should certainly contact a law firm to help you. By choosing the right bankruptcy you can get back on your feet again. Thank goodness there are second chances in life.

by: Nick Messe

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