The Law Office of Douglas J. Powell, P.C.
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Chapter 7 vs. Chapter 13: What you should know

If you are caught in financial turmoil with excessive credit card payments, medical bills, mortgages and other expenses, you are not alone. According to U.S. Bankruptcy Courts, 833,515 people filed for bankruptcy in a 12-month period ending March 2016. Of that number, approximately 523,394 people filed for Chapter 7 bankruptcy, while 302,193 people filed for Chapter 13 bankruptcy. Bankruptcy is designed to help people regain their financial bearings and climb out from under the pile of creditors and debt. There are significant differences between the two most popular types of bankruptcy, and you should understand these variances in order to choose the one that best fits your specific situation.

Chapter 7 bankruptcy, otherwise referred to as liquidation bankruptcy, enables people to emerge relatively debt free if their bankruptcy is discharged. In order to qualify, applicants must make less than the state median. Once they have submitted a list of creditors and the amount owed to each, the trustee who is appointed to the case will organize a meeting of creditors. It is during this meeting that creditors can ask questions, and the trustee may decide to repossess property in order to repay a portion of the unpaid funds.

If you make too much money to qualify for Chapter 7, you may be better suited to file for Chapter 13. In a Chapter 13 bankruptcy, the trustee will help the debtor organize a repayment plan. The trustee will work with creditors in order to consolidate the debt and reduce payment amounts. The debtor will then repay the money owed over a few years until they are debt-free.

This information is intended to educate and should not be taken as legal advice.

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