Chapter 7 bankruptcy and Chapter 13 bankruptcy are powerful financial tools that help debtors regain financial control. Many consumers who consider bankruptcy as an option may not review differences between each chapter. In this sense, it is important to understand how each chapter works in order to get a clear idea on how filing may be able to help your unique situation. While it is true bankruptcy has the ability to discharge or eliminate outstanding debt, how this is accomplished depends on the chapter filed since the process and qualifications vary.
Both bankruptcies have the ability to stop legal collection attempts from creditors with the automatic stay . Once you file, the stay goes into effect and creditors will learn of your filing as a result. Creditors are prohibited from pursing collection attempts for outstanding debt when your petition is filed. Yet, how your debt is handled will depend on the chapter filed.
Chapter 7 bankruptcy helps debtors obtain a fresh start by eliminating debt. This means debt is wiped out or discharged with debtors no longer responsible to pay the debt. This chapter often has qualifying debt discharged within a year or several months after filing the petition. Credit card debt , medical bills , personal loans and other unsecured debt may be eligible for elimination.
Chapter 13 bankruptcy helps debtors repay debt obligations through a court-approved payment plan. This option is often reviewed by consumers wanting to keep their home or vehicle upon falling behind (in default) on loan payments. You make your monthly payment to an assigned trustee who forwards payment to creditors. This option may last between 3 to 5 years but a large number of debtors can repay their debt with affordable payments based on current income. Meaning, you may be able to pay less on what is originally owed depending on the type of creditor.