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How does Chapter 7 differ from Chapter 13 bankruptcy?

As a previous post highlighted, filing for a Chapter 7 bankruptcy can help a debtor obtain a fresh financial start. California residents struggling with financial problems probably understand that there are mechanisms that could help with their debt situation. However, not everyone explores how the bankruptcy process could assist him or her. The term bankruptcy is a tough one to include in one's vocabulary, but even if Chapter 7 is not right for one person, there are other bankruptcy and debt relief options. One of these options is to file for a Chapter 13 bankruptcy.

How does Chapter 7 differ from Chapter 13 bankruptcy? Bankruptcy, in general, is a legitimate legal process used by individuals and businesses dealing with financial problems. The bankruptcy process is initiated to erase debts or work through a repayment plan debts so that an individual or business can stay afloat. The bankruptcy process is also a mechanism used to stop the harassment of creditors, stop wage garnishment, and even halt the repossession and foreclosure processes.

Because Chapter 7 is a process of liquidation, it is considered to be the best option if a person is low-income and without a lot of assets. Chapter 7 requires assets to be liquidated in order to eliminate debt. This process is ideal for eliminating unsecured debts, which include medical bills, credit cards, utility bills, store credit cards, payday loans, and other debts that are not backed up by property or collateral. This is typically the best option if you don't own a house or a lot of possessions except for basic items like clothing and furniture.

Chapter 13 bankruptcy is considered the best option if you have a regular income and the need to stop the foreclosure process. It is a debt relief options that generates a payment plan, helping a debtor pay off his or her debts over a stretch of three to five years. However, because a steady income is necessary for this form of bankruptcy, it is presumed that the debtor can pay for basic living expenses. However, there are limitations to whom can seek Chapter 13 based on current assets and liabilities.

Filing for bankruptcy is not an easy decision to make. It can take time to make this move, as it can be very emotional and life-altering. Thus, those considering bankruptcy or any other debt relief process should take the time to fully understand their situation and what options they might have.

Source:, "Chapter 7 vs. 13: Which Type of Bankruptcy Is Right for You?" Judith Horstman, April 17, 2017

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