DIFFERENTIATING BETWEEN CHAPTER 13 AND CHAPTER 7 BANKRUPTCY

Ohio residents who are struggling with overwhelming credit card or medical debt may be interested in an article describing the different types of bankruptcy available to individuals. Each will help to eliminate debt, though the amount of time that it takes varies depending on the person's financial circumstances.

A Chapter 13 bankruptcy is appropriate in cases where the person seeking debt relief is earning a steady wage. During the bankruptcy proceedings, the court will examine evidence of a person's income, expenses, assets and liabilities, as well as a written statement describing their personal financial situation. They use this information to craft a payment plan lasting up to five years. At the start of the bankruptcy, any new claims by creditors such as foreclosures or repossessions are automatically stayed. If there is a cosigner on the debts, that cosigner gets the benefit of this automatic stay without having to file for bankruptcy themselves.

In contrast to this, a Chapter 7 bankruptcy is for those who do not have a large enough income to qualify for Chapter 13. If their income meets certain tests, the Chapter 7 will discharge the unsecured debts that the person owes, rather than require a payment plan. This debt elimination does not, however, apply to spousal and child support or unpaid income taxes. Qualifying debts such as court judgments, credit card debt and other liabilities will be discharged.

Filing for Chapter 13 or Chapter 7 bankruptcy is an important financial decision that should not be undertaken lightly. If bankruptcy is the best way to avoid foreclosure or create manageable payments, though, an attorney may be able to help. The attorney may be able to assess the person's financial situation and begin the filing process.

Source: EBONY, "The Different Degrees of Bankruptcy, Explained", Lynnette Khalfani-Cox, June 19, 2014