Personal bankruptcy is the topic of this blog and differences between Chapter 7 and Chapter 13 filings the focus of this series. Our last post gave a little more explanation about what liquidation means in the Chapter 7 process. This post will focus on Chapter 13 — the reorganization bankruptcy.
Chapter 13 is called the reorganization bankruptcy process not because it just “shifts” debt around. The process involves the consideration of all income and liabilities to create a payment plan that works for the individual. Essentially, the debt is reorganized from unmanageable to manageable.
A major difference between Chapter 7 and Chapter 13 is the means test requirement for Chapter 7. While this test is easier to meet than people might think, it does exclude some. Chapter 13 is a way for those who earn more income to restructure their debt.
Ineligibility for Chapter 7 is certainly not the only reason to file for Chapter 13. Individual often voluntarily choose this option over the other. If there are co-signers on loans, this process can protect them. By filing for Chapter 13, you can put a stay on the accrual of tax interest charges and penalties. Other reasons may include time requirements for filing a second bankruptcy, default on a mortgage for a home they want to stay in, to remove certain liens on their property and a plethora of other reasons.
Understanding which type of bankruptcy to choose requires more advice and consideration than just two blog posts can offer, which is why it is important to consult an experienced bankruptcy attorney prior to making a decision.
Source:Reporter, “Understanding how bankruptcy works,” Jan. 16, 2013
If you want to learn more about the bankruptcy process in Florida, our law firm has extensive experience in helping individuals and families get the fresh start that they need.