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Personal bankruptcy is when an individual has become insolvent and is seeking protection from their creditors. Insolvency is when your liabilities exceed your assets. There are two personal bankruptcy types: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Read on to learn about the differences and which road to personal bankruptcy will be the most beneficial to you in your particular situation.

Personal Bankruptcy: Chapter 7

Chapter 7 personal bankruptcy legally releases the debtor from any personal liability for certain types of debt. This type of personal bankruptcy stops creditors from seizing your property and prevents them from taking any other collection action on discharged debt. Some creditors, though, will still be able to seek payment for what are called “unenforceable” liens. For example, if you declare personal bankruptcy but have secured loans, the lender may be able to seize the collateral.

When you file Chapter 7 personal bankruptcy, everything except your “exempt” property (i.e. real estate, trade or professional tools, prescription health aids, unemployment benefits) are liquidated and used to pay back your creditors.

Personal Bankruptcy: Chapter 13

Chapter 13 personal bankruptcy is different in that you do not liquidate your assets. Rather, in Chapter 13 bankruptcy, you are simply restructuring your debt. Because of this, you do not have your debts discharged. This is often a preferable method of personal bankruptcy as it is less damaging for your credit rating and lets you keep your assets.

When you file  Chapter 13 personal bankruptcy, you are given a new interest-free plan for repayment. The court helps devise the plan so that it is acceptable to all parties. After the payment plan for your personal bankruptcy is made, you have 30 to 45 days to begin making payments.

Your creditors have the right to dispute your payment plan if they do not agree with the terms. However, ultimately, the bankruptcy court has the final say in what is approved.

Personal Bankruptcy Attorneys

Whether you choose Chapter 7 or Chapter 13 bankruptcy, it is incredibly important that you seek out the services of a personal bankruptcy attorney. Personal bankruptcy attorneys will help you file the correct paperwork, provide guidance on which option to choose and help represent you in bankruptcy court. Oftentimes, a creditor will file an objection to your personal bankruptcy plan or will seek to make a debt unenforceable. In this case, you need to have a skilled personal bankruptcy attorney in order to protect your interests.

Personal bankruptcy is an unpleasant process that is often seen as the end of the road when you have nowhere left to turn. But in reality, there are an additional host of new choices to decide upon once you decide to declare personal bankruptcy. Regardless of whether you choose Chapter 7 personal bankruptcy or Chapter 13 bankruptcy, it’s vital that you have all the necessary information and the professional guidance needed to make the bankruptcy process as beneficial as possible to you. Proceed with personal bankruptcy with diligence and caution.