Choosing to file for bankruptcy can be one of the most difficult decisions one will ever make. Whether it is your personal assets or your business that you stand to lose, filing for bankruptcy represents having to give up what you have worked so long to build or earn. Because of this, declaring bankruptcy can also be a huge blow to personal pride or dignity, making the situation even more difficult.
There are actually many different ways to file for bankruptcy, each with its own qualifications, terms, and conditions. Given that filing for bankruptcy will signal hard times ahead, it is important that you take the option which will be the best for you.
To ensure that you make the right decision, it is advisable that you hire a chapter 7 bankruptcy lawyer who can guide you through the process. In larger urban areas such as Salt Lake City, such professionals are easily reachable should you need them.
In order to help make sure that you can get the best deal possible given your situation, it is useful to know the basics behind filing for bankruptcy — specifically, the options that are available to you. Here are the two most common ways to file for bankruptcy in the United States, as well as their similarities and differences:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also called liquidation or straight bankruptcy, is the most common type of bankruptcy in the United States. It is referred to as “liquidation” bankruptcy because that is precisely what happens in this instance; the filer’s assets are liquidated (meaning converted to cash) and used to pay off creditors. Only exempt property or property that qualifies as necessary to maintain a decent standard of living (meaning a primary home or car, as well as personal possessions) can be retained.
Once this is completed, the filer’s debts are discharged, meaning that the filer is released from any liability to pay and the creditor is no longer allowed to seek future restitution. However, one may file for Chapter 7 bankruptcy only once every eight years, and this will appear on the filer’s individual credit report for the next ten years.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy, known sometimes as a “wage earner’s plan” differs from Chapter 7 in that no assets have to be liquidated to pay off debts all at once. Instead, an agreement is reached – through the mediation of a trustee – between the filer and creditor for the filer to pay any outstanding debt within a certain timeframe. These payments are made through a plan wherein the filer pays an agreed-upon amount every month to the trustee, who then consolidates and distributes the amount to creditors.
The primary benefit of this is that the filer gets to keep all personal property. However, it also means a longer period of being saddled with debt and having to make monthly payments, whereas a Chapter 7 bankruptcy erases all debt in one go.
These means of filing for bankruptcy primarily apply to individuals, though they may apply as well to organizations and corporations. Declaring bankruptcy provides a way out of any debt that may have trapped you, and so if the circumstances call for it, you should be willing to take that step. Furthermore, it provides you with a clean slate, and a fresh start, which is what anyone saddled with debt is longing for.