You may be asking your self what are the different types of bankruptcy out there? Considering bankruptcy as a solution to your debt problems? Before you take that step, be sure that you are aware of all the facts surrounding bankruptcy.
2 Main Types of Bankruptcy
First, it is important to understand that there are actually two types of bankruptcy. These are known as Chapter 7 and Chapter 13. Below is a basic rundown of the differences between the two.
Chapter 7 bankruptcy refers to when your debts are completely discharged(Chapter 7 Bankruptcy Checklist). This means they are wiped away under a court proceeding. You are not required to pay off the debts under this type of bankruptcy.
Chapter 13 bankruptcy refers to a type of bankruptcy where a trustee is appointed by the court to administer a repayment plan for your debts. Under this plan you would pay back a percentage of your debts. Typically, the money will be paid to the trustee in one lump sum and then the trustee will pay the creditors according to whatever repayment plan has been worked out. Once all the debts are paid then you will be released from further obligation regarding the debts.
You should be aware that it is typically more difficult to file for bankruptcy under Chapter 7 in order to wipe out your debts. Generally, the court will find that if you are able to make payments, then you must instead file for Chapter 13 and repay at least a portion of your debt, if not all of entirely. So, don’t count on being able to file for Chapter 7 bankruptcy if you considering filing. Most people are now required to file Chapter 13.
Proceeding With The 2 Different Types of Bankruptcy
Typically, you will be required to obtain a certificate from a debt or credit counseling agency that is approved by the court before you can file for bankruptcy. This is a relatively new requirement. The point behind the requirement is to ensure that you learn how to manage your debt and credit in the future to avoid any further problems. To obtain the certificate you will generally be required to attend educational classes regarding debt and credit management.
You will also be required to turn in income and expense statements. In addition to information regarding any debt repayment plans that you may have also entered. The information you will be required to submit will also typically include your pay stubs as well as tax returns and whether you anticipate any increase in income in the future. This information must be gathered within 45 days of filing a petition for bankruptcy. If you fail to provide the requested information within that time frame your case will usually be automatically dismissed. Now you need to decided between the two types of bankruptcy.