The economic crisis of the past few months is taking its toll on many people in Maryland. While state and federal programs have helped, some of these programs will soon expire, leaving many people struggling to pay their bills. If they have outstanding debt — and most Americans do — then they can soon run into serious financial trouble.
The U.S. Bankruptcy Code offers some of the most powerful ways to get out of debt. The two most common forms of personal bankruptcy under the code are known as Chapter 7 and Chapter 13. Understanding the main differences between them can be an important first step toward getting personal debt under control.
Chapter 7 is the fastest form of personal bankruptcy. An eligible person filing for Chapter 7 can expect to eliminate most types of debt within three to five months. A person who files for Chapter 7 will have to liquidate many types of assets in order to pay off creditors, but fortunately there are many types of assets that are exempted from the liquidation requirement.
Chapter 13 protects people from their creditors while they develop and carry out a repayment plan, under the supervision of the bankruptcy court. If they are able to keep to the plan, they can eliminate most of their debt within three to five years. There is no requirement for liquidation of assets. Since Chapter 13 requires people to make regular payments, it is recommended primarily for people who have a job or other steady source of income.
Both types of personal bankruptcy have their advantages and disadvantages, as well as their own eligibility requirements. However, both types can be powerful ways of getting out of an impossible situation and returning to financial integrity.