Chapter 7 is a bankruptcy liquidation, commonly referred to as a “straight bankruptcy”. Chapter 7 Bankruptcy allows individuals, self-employed individuals or debtors otherwise engaged in business, including incorporated entities, as well as Debtors engaged in business, to discharge their debts.
Chapter 7 provides complete relief of unsecured debts, in a relatively short period of time, in that it normally takes 4-5 months from the date of filing to the date of discharge. A bankruptcy discharge releases individual debtors from personal liability for their debt. The main purpose of a Chapter 7 filing is to discharge unsecured debts, such as credit cards, personal loans, repossession deficiencies, hospital bills, pay-day loans, business debt on which you are personally obligated, and certain old personal or corporate income taxes. If you are behind in payments on secured debt, such as a house or a car, a Chapter 13, rather than a Chapter 7 is typically the better option, because Chapter 7 does not provide a way to cure secured debt arrearages as Chapter 13 does.
Chapter 13 bankruptcy allows individuals, as well as debtors engaged in business, to reorganize their debts. While Chapter 13 has historically been referred to as a “wage earner’s” bankruptcy, any individual with sufficient regular income from any source may qualify for a Chapter 13 filing. Self-employed individuals may also qualify for Chapter 13 relief, and may continue to operate their businesses in Chapter 13. Incorporated entities, however, are not eligible for Chapter 13 relief.
There are certain debt limits that apply to Chapter 13, which change periodically. At this writing, the Chapter 13 debt limit is $394,725 for unsecured debt, and a $1,184,200 secured debt limit. Examples of unsecured debt are credit cards, personal loans, repossession deficiencies, hospital bills, and certain old taxes. A debt is secured if a creditor has taken a security interest in collateral that you own, such as your home or your car.
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