Bankruptcy is a term that most people, lawyers and lay people alike, understand. To the average person, bankruptcy means a fresh start financially in which a person’s debts are discharged, and he or she starts over after relinquishing rights to much of his or her valuable properties. Once the conversation turns to different chapters of bankruptcy, however, the details become a bit less clear.
Within the United Bankruptcy Code there are several different kinds of bankruptcy chapters, each representing a different approach to clearing a person or business’s debts. The primary chapters for individuals filing bankruptcy are Chapters 7 and 13. Each of these chapters has different options and aspects that appeal to different types of debtors.
Chapter 7 Bankruptcy
When contemplating whether filing for bankruptcy is a good idea for you, it is best to have a general sense of what each chapter under the Bankruptcy Code means. One of the most common types of bankruptcy is a Chapter 7 filing, and it may or may not be the right type for you.
A typical Chapter 7 bankruptcy filing allows a debtor to declare his or her debts, and discharge most of them. This allows a debtor to walk away from debts, but it also means giving up some important assets.
Chapter 13 Bankruptcy
For those seeking bankruptcy protection who are also seeking to preserve their assets, Chapter 13 may be a great option. Bankruptcy under Chapter 13 allows a debtor to restructure debt through a plan submitted to the court overseeing the bankruptcy petition. In a typical case, a debtor will list income and debts, and come up with a proposed plan for the court to approve or deny. Then payments are made over a three to five year period. After the payment plan is done, the debts are gone.
The history of the Chapter 13 bankruptcy goes back to the late 1970s. Bankruptcy itself has been evolving in this country and England since the late 1400s, and during the 1970s Congress saw that there was a need for the kind of bankruptcy that allowed both the debtor and creditor to win.
The purpose behind a Chapter 13 bankruptcy is to ensure that a person can retain some of his or her most important assets, while making good on paying back some debts. In addition, the creditors win because they are allowed to collect on some of the debts they are owed, which do not then represent a complete loss. Overall it is better for creditors to get notice of Chapter 13 bankruptcy because in Chapter 7 unsecured creditors are usually left holding the debt with nowhere to turn for repayment.
Your California Bankruptcy Law Partners
If you live in Southern California and are considering whether bankruptcy is right for you, it is important that you have the right legal team on your side. At the Bankruptcy Law Center our team of bankruptcy legal professionals will help guide you through the best options for you and your future — whether that means a Chapter 7 or 13 petition. Contact us today.
(image courtesy of Pepi Stojanovski)