There are two common forms of personal bankruptcy that many people have heard of, but they may not know the differences between them. Chapter 7 bankruptcy and Chapter 13 bankruptcy are critical tools that people can utilize to get out from underneath their debt. But what does it mean to file for either form of bankruptcy, and why would someone choose one form over the other?
Chapter 7 bankruptcy is the typical route for many people seeking bankruptcy, and it can ultimately help you get back on solid financial footing. This form of bankruptcy is best suited for those who need instant relief from debt; who aren't afraid of the liquidation process that would see assets sold off to pay for debts; and for those who have debts that can be easily discharged. In addition, the financial requirements for Chapter 7 aren't as rigorous as Chapter 13.
Chapter 13 is considered the "repayment" route. This bankruptcy allows you to discharge some debts similarly to Chapter 7, but it also restructures your debt into three- or five-year plans. Chapter 13 can also protect your home or car from foreclosure or repossession, respectively. Chapter 13 is often considered a better option for those with some financial means to repay their debt over time.
Whatever route you choose, there are qualifications that must be met and legal processes that must be strictly followed. Compliance during the bankruptcy process is essential, no matter who you are or what bankruptcy you choose.
Source: FindLaw, "Chapter 13 vs. Chapter 7 bankruptcy," Accessed April 5, 2017