If you are concerned you may need to file for bankruptcy, your mind is probably racing with questions about the best way to move forward. There are two main types of bankruptcy commonly used by individuals, and they are distinctly different. Here's a look at Chapter 7 bankruptcy as compared with Chapter 13 bankruptcy:
Also known as a liquidation, Chapter 7 gives you a "clean slate" and resolves many debts. Some of your property may need to be sold to pay your creditors. But filing for Chapter 7 will enable you to immediately stop harassing phone calls and letters from collection agencies, and stop your wages from being garnished. While your bankruptcy is in process, creditors cannot sell your house or car, or cut off your utilities.
There are only a few debts that cannot be resolved in Chapter 7, such as student loans, taxes due, and court-ordered child or spousal support payments. The process usually only takes between four and six months.
In order to conclude a Chapter 7 liquidation, you will be required to complete credit counseling with an agency approved by the U.S. Trustee. If you have some ability to repay your creditors over time, you will likely be rejected for Chapter 7 and required to file a Chapter 13 bankruptcy.
This chapter is sometimes known as bankruptcy reorganization. Chapter 13 will allow you to work out a repayment plan with your creditors to pay them back over time. This can relieve the crushing financial pressure of struggling to get current with creditors again right away.
Once the court approves your repayment plan, your lenders will be compelled to accept it. You can pay off unsecured debts such as credit cards or medical bills through Chapter 13. Your case will conclude when you finish paying off your debts, usually in three to five years. If you've fallen behind in your payments, but feel you could pay off your debts if given more time, a Chapter 13 bankruptcy can help you resolve your debts while giving you financial breathing room.
Have questions about which type of bankruptcy is right for your situation? The experienced Michigan bankruptcy attorneys at Johnson & McLoyd are here to assist you in resolving your financial difficulties.
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