Many people believe that going through the process of filing for bankruptcy is a good way to quickly and easily erase all of their debt. While bankruptcy can be a good financial strategy for people with certain kinds of debts, it is important to know some basic facts about bankruptcy before filing. To start, there are three main types of bankruptcy, Chapter 7, 11, and 13. Listed below are what makes these three types of bankruptcy filings different from one another.
Chapter 7 bankruptcy is designed to help individuals who need to completely wipe out their debts. This type of bankruptcy is the hardest to qualify for, but it also can eliminate the most debt. While the exact laws that determine who qualifies vary from state to state. Those applying for Chapter 7 have to show that their income is too low and are unable to pay back their debts within a reasonable period of time. This type of bankruptcy can be a good way to completely eliminate unsecured debts. Credit cards, payday loans and medical debt are usually totally erased without having to make further payments or sacrifice personal assets.
Chapter 11 bankruptcy is meant for businesses or individuals who do not qualify for a Chapter 13 bankruptcy. This type of bankruptcy can be filed by businesses or individuals that need to reorganize their debts. Usually, Chapter 11 bankruptcy is used for businesses who have acquired millions of dollars in total debt and assets. A chapter 11 bankruptcy is a great option to keep your business up and running while working on improving the future success of your business.
Chapter 13 bankruptcy is only used for individuals who need to restructure their debts. This type is required of people who have a sufficient income to make some type of payment on their debts. It is also used when someone has gotten behind on their payments and would like to keep their home. Once filed, a judge will review the request and approve or suggest modifications to a new debt payment plan. Typically, these plans can last anywhere from three to five years and will partially or completely pay off the debt. Under a Chapter 13 filing, a debtor will not be required to sell more of his or her assets than he or she would under a Chapter 7 filing.
Finally, it is important to note that some types of debt cannot be discharged in a bankruptcy. Student loans, certain tax debt and child support are three examples of debt that can hardly ever be erased by filing for bankruptcy.