Bankruptcy basics: Chapter 7 and chapter 13 explained

Entering the world of bankruptcy may feel overwhelming for anyone looking to relieve their burden of unmet financial obligations. However, simplifying the process begins by understanding the basic components that leads you toward the relief and freedom you seek. While it may feel daunting at first, reading this article is one of the best first steps you can take to regain your financial life.

Where does it all begin?

Before discussing the two main categories of bankruptcy, it is important to give yourself credit for making a courageous step of personal responsibility. There is no shame in admitting you are in over your head and need serious legal help for your current financial state. With that said, your filing will fall into one of two categories, either chapter 7 or chapter 13 bankruptcy.

Chapter 7 bankruptcy

A less complicated route is often the case when chapter 7 bankruptcy is considered. If you fall below a certain income amount, this would likely be the category you are eligible for. Chapter 7 includes a simpler giving back of assets (i.e. house, car, etc.) and arranging more affordable payments towards the base value. However, you are more obligated to meet payment expectations and not have as much flexibility as chapter 13 bankruptcy.

Chapter 13 bankruptcy

When your income lands above a certain level, chapter 13 bankruptcy applies. Within this category, you may be permitted to keep a house and/or car on the stipulation of remaining current on payments outlined by the court. In general, chapter 13 bankruptcy allows more leniency when it comes to erasing debts and stopping harassment from creditors.

Each category has many more stipulations depending on the type of debt owed (i.e. child support, student loans, divorce assets, etc.) It is best to jot down any questions that arise through your research and seek professional advice pertaining to your unique situation. Although there are many moving parts to the big picture, remember that moving forward will answer your questions and eliminate unnecessary confusion.

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