Before people in California file for bankruptcy they have usually spent a significant amount of time weighing their various options. While bankruptcy can be a necessary financial lifeline, figuring out which form to pursue can be confusing. Chapter 7 bankruptcy and Chapter 13 bankruptcy are the two main forms of personal bankruptcy, and here are a few key points about each.
Chapter 7 is frequently referred to as a liquidation bankruptcy. When a person files for Chapter 7, some of his or her assets are sold in order to repay creditors. That property is considered nonexempt and includes things like expensive vehicles and valuable jewelry or artwork collections. Exempt property covers things like a person's primary residence (up to a certain amount), retirement accounts and vehicles necessary for getting to work. After the proceeds from the nonexempt property are distributed between a person's creditors, the remainder of his or her unsecured debt is generally discharged.
Individuals who file for Chapter 13 bankruptcy do not have to give up their property. Instead of selling off assets to settle debts with creditors, these individuals must propose a repayment plan that lasts anywhere from three to five years. It is subject to court approval. Once an individual has completed his or her payment plan, remaining unsecured debts will be discharged.
Whether a person files for Chapter 7 or Chapter 13 is largely based upon his or her income. Those making below the average income in California qualify for Chapter 7. Anyone making more than that can pursue Chapter 13 instead.
Deciding to file for bankruptcy can be an emotional experience. People in this position are usually already dealing with difficult situations, including fielding harassing creditors and even possibly facing foreclosure. Both Chapter 13 and Chapter 7 bankruptcy can provide struggling individuals with an invaluable opportunity to repair their finances.