subject: Bankruptcy Laws: Chapter 7 & 13 [print this page] There were about 1.5 million people who filed for bankruptcy within the United States at the end of 2009. This indicates how easy it is to file for bankruptcy, however, an individual should always refrain from declaring bankruptcy. It might seem like an easy way out at the time, but there are certain penalties you have to pay. Lets take a look at bankruptcy laws.
Chapter 7
There are two main components to Bankruptcy laws. The first is Chapter 7, the most familiar bankruptcy proceeding. Chapter 7 deals with liquidation as compared to the other main component of bankruptcy laws, Chapter 13. We will discuss Chapter 13 in detail later on in this article. In chapter 7, the debtor is only permitted to retain exempt property. Whatever non-exempt property the debtor holds will be sold or liquidated in order to cover their debts. The amount unpaid on dischargeable debts will be released.
A typical Chapter 7 proceeding would progress in this manner. Initially, the debtor files a petition declaring bankruptcy. This petition must indicate all assets and liabilities (debts) that person has. There are two subdivisions created in assets and those are exempt and non-exempt. As stated previously, the exempt assets are those that the debtor can retain after the bankruptcy proceeding.
It is the role of the selected trustee in the Chapter 7 proceedings to gather all the non-exempt assets from the debtor and sell them. All proceeds are then dispersed accordingly to the creditors according to their priority rating.
There are not only subdivisions created in assets, but also in liabilities or debts. Some debts are considered to be non-dis-chargeable by Chapter 7 laws. This states that a debtor still has to pay their debt off even after declaring Chapter 7 bankruptcy. An instance where this occurs regularly is when students take loans to pay off their college tuition.
The other category that is included within debt is secured debt. In secured debt, the creditor maintains a keen interest in certain property belonging to the debtor until the total debt is paid. Secured debts have a higher priority as compared to non-secured debts. Non-secured debts are commonly the last ones to be paid off. However, if there are not sufficient assets to pay them, these debts are likely to be discharged altogether. Common examples of non-secured debt are signature and credit card loans.
Chapter 13
Chapter 13 is more commonly known as reorganization bankruptcy and is used by 25% of the consumers. When an individual files for Chapter 13 bankruptcy, they prefer to pay off their debts within a 3 year tenure. Chapter 13 bankruptcy is favored by those who have non-exempt property which they want to retain. The sum of reimbursement can vary from 10% to 100% depending on how much the debtor makes in salary and the sum owed to the creditor.
Bankruptcy filed under Chapter 13 is also known as a wage earners plan. It allows consumers who have a regular income to devise a time line to reimburse all or some of their debts. In Chapter 13, debtors draft a repayment plan to disperse installments to creditors over 3-5 years. In the case that the debtors current monthly salary is less than the relevant state average, the plan is for 3 years unless the court declares otherwise.
