Tuesday, 15 July 2014

Chapter 7, 11 and 13 Bankruptcy – Different Ways Of Restoring Your Finances

Posted at  09:57  |  in  Bankruptcy

When people find it impossible to deal with their soaring debt level, they consider taking resort to the only option for the hapless, which is bankruptcy. Bankruptcy is that debt relief option that helps you rejuvenate your finances so much so that you can relieve yourself of all the debt woes that has been irking you for so long. However, it is for you to know that there are different chapters of bankruptcy like Chapter 7, Chapter 13, Chapter 11 and some others. The most common kind of consumer bankruptcies is Chapter 7 and Chapter 13. Let’s have a look at the different kind of bankruptcies that consumers can take resort to.

Chapter 7 bankruptcy: The other name of this kind of bankruptcy is ‘liquidation bankruptcy’. The primary advantage of this kind of bankruptcy is that the debtor is left with no future obligations on his discharged debts. However, you have to take into account that bankruptcy doesn’t wipe out most kinds of liens and mortgages. If a debtor wishes to retain some item like car or house, he/she requires continuing with the payments. The best reason to file Chapter 7 bankruptcy is that when they qualify for this kind of bankruptcy, they can discharge off all their debts and also improve their credit score sooner than someone who files Chapter 13 bankruptcy. However, in 2005, a new law was passed where the petitioner needs to qualify for the Means Test before filing Chapter 7 bankruptcy. This clause was introduced so that a large number of people didn’t take undue advantage of this kind of bankruptcy. The new clause has certainly made filing Chapter 7 a bit too difficult.

Chapter 11 bankruptcy: This is not a type of bankruptcy that is used by consumers; rather it is a kind that is used by large and small business firms to reorganize and restructure their debts while continuing their operations. Partnerships, corporations and limited liability companies that can’t utilize Chapter 13 bankruptcy, need to stop all operations if they file Chapter 7. It is then that they consider filing Chapter 11 bankruptcy. This is one of the most common bankruptcy kinds filed by business firms.

Chapter 13 bankruptcy: This is called the restructure plan where the debtor can receive a discharge of his debts after he repays a portion of his debts through an alternative repayment plan arranged by the court. The court will assess the debtor’s present financial condition and then waive off a certain portion from the debtor’s total amount. The attorney will then reduce the amount and make it possible for the debtor to repay the amount. He will sign the agreement and make timely payments stretched throughout a period of 3-5 years. Due to the imposed automatic stay, no creditor and collector actions can be taken during this.

Hence, when you’re wondering about the different types of bankruptcies that you can take resort to in order to start afresh, you can take into account the above mentioned types. Make sure you improve your credit score immediately after discharging your debts.

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Jimmy Simond is founder of wallstreetsfinancenews.com he share his immense knowledge of finance in this blog. You can follow him on Google+.

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