Bankruptcy is most often a court-ordered process that is first initiated by the debtor. During this process, both individuals and businesses can get the help they need to rid themselves of debt or repay their creditors over time. There are several different types of bankruptcy; two common ones being Chapter 7 and Chapter 13. Bankruptcies fall under one of two categories: liquidation and reorganization, depending on the circumstances particular to the financial situation of the indebted individual. Understanding the difference between these two could help you make an ultimate decision on whether or not to file and which process will work best for you.
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Chapter 7 bankruptcy is a process that is available to both businesses and individuals. Typically, this is a process that falls under the category of liquidation. When filed as an individual, this will be referred to as consumer Chapter 7 bankruptcy, and when filed as a business it will likely be referred to as business Chapter 7 bankruptcy. In both cases, the process could takes anywhere between three and six months to complete. During this time, you can expect some of your property to be seized and sold off to pay for a portion of your outstanding debts. This is a procedure commonly referred to as liquidation of property, and it is a common component of Chapter 7 bankruptcy filings. A crucial part of the process will be differentiating secured debt from unsecured debt, as debtors are provided with the option of allowing creditors to repossess the property that secures their debt. Included in this decision will the determination of whether or not to continue making payments on the debt owed to a creditor or instead making one lump sum payment that is equal in the amount owed to replace the value of the property securing the debt.
Chapter 13 bankruptcy takes a somewhat different approach to the matter. In this type of procedure, which is often referred to as reorganization, the debtor will very likely be able to keep their property, providing that a plan is devised in which the debt will be repaid, at least partially, within a period of three to five years. This is often referred to as "wage earner" bankruptcy because only those individuals that can prove that they have a reliable source of income will be eligible to file for Chapter 13. This is a procedure that allows the debtor to devise a payment plan that can be used to repay the monies they owe to one or more creditors. Based upon a debtor's income, the amount of money owed, and how much creditors would have received if a Chapter 7 filing was made, the amount owed by a debtor will be established. This process will also allow debtors the opportunity to repay secured debts, even if they are behind on their payments, without fear of having their property repossessed.
Whether you determine that Chapter 7 bankruptcy or Chapter 13 bankruptcy is right for you, the most important thing to remember is that declaring oneself bankrupt is a legal proceeding that should be handled by a none other than a professional attorney. Both Chapter 7 and Chapter 13 are viable means to relieve oneself of the debt that has been looming over a person for far too long. Depending on the circumstances of any give case, one may be better than the other, and an experienced bankruptcy lawyer can help you make this decision. In fact, to go any other route could be detrimental to your case, as making decisions and taking action without the guidance of a skilled professional could likely end unwell for the persons involved.
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