Understanding the Two Types of Personal Bankruptcy

Posted by & filed under Chapter 13 Debt Relief, Chapter 7 Debt Relief.

Bankruptcy is not something that most San Diego residents think about very often. It doesn’t enter their mind until they find themselves in a dire financial situation, and when they do start thinking about it, they find they have no real idea of what bankruptcy is or how it works. Many do not even realize there are two major types of personal bankruptcy. Let’s look at each of these briefly so you can get a better understanding of what they entail.

Chapter 7 Bankruptcy
With Chapter 7, you can have part of your debts, or a portion of your debts discharged. You will generally need to pay for some of the debt with the liquid assets you have though. A liquid asset is cash or something that you can quickly convert to cash. You would have to turn this over to the courts, and then it is distributed to your creditors. You will then no longer be liable for the debts against you. To qualify for this, you will have to take a means test to prove that your income is less than the median income, and you will have to take a credit counseling course.

Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is a good choice for those who have a secured debt that they want to keep paying, such as a car payment. You do not necessarily have to give up your liquid assets with this type of bankruptcy either. This could also be a good choice for those who do not qualify for Chapter 7 due to the means test.

If you find that you are in financial trouble, and you believe that filing for bankruptcy is your best choice, you really do need to make sure you speak with an attorney to learn more about your options and to determine which method of filing will work the best for you.

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