Posts Tagged ‘pay off debt’

Knowing the difference between Chapter 7 and Chapter 13 bankruptcy is beneficial to both creditor and debtor. This will enable the two parties to act accordingly to protect the creditor’s interest on the one hand, and for the debtor to get help get out of debt, on the other hand.

Filing a petition in court to avail of the remedy as provided in Chapter 7 does not necessarily entails that the liability of the debtor is extinguished in its entirety. The debts which could not be recovered by the creditor are those debts which are commonly unsecured like credit card bills, or hospital bills. But in order to pay off debt, the debtor’s personal property shall be sold in order to pay his creditors. This will also adversely affect the credit standing of the debtor making it impossible for him to secure a mortgage, a car loan, credit card application or even financing for certain appliances. It must be pointed out however, that even if the personal property of the debtor will be up for sale, there are certain limitations which the law provides explicitly provides. An example of this protection is the prohibition in putting up for sale the homestead of the debtor for the purpose of paying his debt. Chapter 7 is admittedly has numerous drawbacks running against the debtor that is why this is not very much often resorted to by debtors.

Under Chapter 13 bankruptcy, it is substantially provided that a petition under this petition is merely a showing of the desire of the debtor to restructure payment of his debt. This entails negotiation between the two parties on how the debtor will be able to satisfy his obligation in three to five years time. This is both advantageous and disadvantageous to both parties. Looking at the part of the debtor, this is advantageous because he will be given a leeway and an opportunity to fulfill the obligation without his most prized personal possessions being sold off. This is also disadvantageous for him because his liability still subsists and is subject to a given time limit. But for having availed this remedy instead of Chapter 7, this will not cause much damage to the credit standing of the debtor. Hence, he may be able to get loans from financial institutions or business establishments if necessary. The payment scheme that would be usually agreed upon by the parties under this chapter is by monthly payment.

Between the two options in settling an existing indebtedness, it has both the pros and cons depending on the circumstances which the debtor is into. It is always wise for him to seek out the aid of somebody who is knowledgeable enough to determine the impact of the recourse to be taken in order to avoid any disaster especially when his personal possessions and credit standing is at stake. Both chapters ultimately aim to help those who are financially challenged. It is just a matter of weighing the consequences that awaits them in coming up with the solution to their predicament.