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Understanding the difference between Chapter 7, 11 and 13

No two people have the same financial situations, which also means no two people handle their debts the same way either. It's a fact not lost on people in New York where the sudden loss of a job or serious illness or injury could just as easily create a challenging situation here as it could anywhere else in the country.

Thankfully, people can seek relief from their debt through a bankruptcy petition. Although there are several types of bankruptcy, the common three filed by most people are: Chapter 7, Chapter 11 and Chapter 13. Each has its own pros and cons. But which one is best for you? Let's take a look. 

Chapter 7

This is typically what most people think of when they hear the word bankruptcy. Chapter 7 allows a debtor to eliminate their unsecured debts while giving them the opportunity to hold onto certain secured debts, such as specific property and even their homes in certain cases.

Unsecured property is gathered then sold to pay off creditors. Any remaining debt is typically wiped clean, giving a person a fresh start - albeit with a damaged credit score.

It's important to know that not all debts are dischargeable in Chapter 7. Student loan debt, for example, can only be discharged in extremely rare circumstances. Medical debt, on the other hand, can be eliminated.

Chapter 11

Though this form of bankruptcy is typically associated with businesses, certain individuals may be able to file this form of bankruptcy, provided they meet specific requirements. Individuals likely eligible for Chapter 11 are those who have earning potential but are not eligible for Chapter 7 or Chapter 13 bankruptcy because of specific limitations.

Those approved for Chapter 11 will be able to follow through with reorganization plans that will allow them to pay down their debt in more manageable ways.

Chapter 13

Some individuals can qualify for Chapter 13, which eliminates debt by selling nonexempt property to pay off creditors then rearranging remaining debt into a more manageable repayment plan that typically lasts from three to five years in most cases.

Which form of bankruptcy is best?

Many consider Chapter 13 to be the best form of bankruptcy because it allows an individual to reduce their debt while still allowing them to be responsible for some of their debt. Unfortunately, it isn't always an option for everyone. Only after talking to a bankruptcy attorney can you fully understand which form of bankruptcy is best for you and how to start down the path to becoming debt free.

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