In the US there are essentially two ways to go through a personal bankruptcy. These two proceedings are known as Chapter 7 and Chapter 13 Bankruptcy and they are significantly different from each other.

In October 2005 Congress changed the bankruptcy laws making it much more difficult to simply walk away from personal debt. The new law essentially says pay back the debt through a court approved payment plan and you can keep your house and some other property (Chapter 13); or sell everything you own, including your property, to pay what you can to discharge your debts (Chapter 7).

If a person opts for Chapter 7 they are essentially agreeing to liquidate all of their belongings and property, with the exception of work related tools and some basic household goods, to pay back the debtors. This is called a straight bankruptcy. To insure that the debtor does not profit from this discharge of debt, the law puts a restriction on how much the debtor can earn while the bankruptcy proceeds.

Another difference between the two is the amount of time that must pass before you can refile. With Chapter 7 the waiting period is 8 years. With 13 it is two years.

Both types of bankruptcy can get rid of unsecured debts and stop foreclosures, repossessions, garnishments and debt collection activities. Both can provide exemptions that allow people to keep certain assets, although exemption amounts will vary by state. Obligations that cannot be satisfied by either form of bankruptcy include child support, alimony, fines, certain taxes and student loan obligations both government and privately funded.

Unlike the liquidation proceedings in a Chapter 7, Chapter 13 is designed to allow the debtor to pay off all the debt over a period of time. However, the court must be satisfied with the pay back plan otherwise it can order that other property such as boats, cars etc be sold to insure that the debts are fully paid. Arriving at a reasonable pay back plan is essential if the debtor wishes to keep his property.

In the past, bankruptcies clogged the courts as they were easy to get. Today the law tries to slow that processdown by requiring all persons desiring to file bankruptcy, to attend a government appoved counseling course regarding personal finance and credit. This requirement was added in the hopes that the debt problemcould be resolved outside the court. In addition, persons wanting to file Chapter 7 now have to have the approval of the Court regarding their income. If the Court feels that an individual’s income is too high, they will not let them walk away from the debt through liquidation.

Bankruptcy is an emotional time but a necessary step for those who absolutely need the relief.

Chris A Smith follows the personal credit industry and reports on credit card issues, credit reporting agencies, personal bankruptcy, credit rebuilding, alternative banking products and more. To find more details on bankruptcy and alternative plans, go to the popular credit site CreditFix

Article Source: Chapter 7 And Chapter 13 Bankruptcy-What’s The Difference