According to statistics from the United States Courts, there were 434,540 bankruptcies filed in the year 2021. Contrary to popular belief, only a small percentage can be blamed on irresponsible financial handling. A majority of bankruptcies happen due to medical crises for individuals.
But for a long time, people avoided bankruptcy because they were under the impression they'd lose all their possessions. Education surrounding the common types of bankruptcy, Chapter 7 and Chapter 13, has increased awareness of how gentle it can be on consumers.
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Before filing for bankruptcy, it is extremely important to know the long-term effects of the process. The different types of bankruptcy carry varying time limits even after all documentation and filing has finished. This is called an open bankruptcy period.
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Chapter 7 Bankruptcy Details
When filing for bankruptcy, there are several different ways to approach it. If you're looking for a way to repay creditors and meet certain financial qualifications, filing Chapter 7 bankruptcy is one way to do that. Under Chapter 7 bankruptcy, you can sell or liquidate assets that are not exempt from the bankruptcy to pay back creditors.
Some individuals may be able to keep certain belongings under Chapter 7. Because this type of bankruptcy is a reorganization, it liquidates many of your assets to pay off creditors partially. If you can prove that your income can continue to support a monthly mortgage and car payment, you are allowed to keep those assets.
Chapter 11 Bankruptcy Details
Although this type of filing is usually for a business, individuals can file for Chapter 11 bankruptcy as well. When you claim this type of bankruptcy, you essentially require help reorganizing debts. It is simply a consolidation or restructuring of payments so that creditors still get payment.
Chapter 11 bankruptcy must go through court proceedings and approval. Once approved, then the case will continued to be monitored by a trustee that is appointed by the courts.
There may be some debts not fulfilled under the terms of this type of bankruptcy. These debts will be discharged under the Chapter 11 bankruptcy.
Chapter 13 Bankruptcy Details
When you do not meet the qualifications for Chapter 7 bankruptcy, you still may be able to file for Chapter 13 bankruptcy. This type of bankruptcy is very similar to chapter 11 in that it aids individuals in paying back their debts over a long period of time.
The process requires a submission of repayment plans to the court. In the case of Chapter 13, the court-appointed trustee will make the payments while the individual pays the trustee. This method ensures that the creditors are getting their agreed upon payment every pay cycle, and the individual remains organized with finances.
Just like Chapter 11, unsecured debts that are not a priority, will not be paid in full and will be dismissed under Chapter 13. This only occurs if the repayment plan is consistent and finishes on time.
Duration of Open Bankruptcy
Every case of bankruptcy differs from the next. Because much of bankruptcy qualifications and repayment plans depend on the individual's income, the time that the bankruptcy remains open is not exact.
With a Chapter 7 bankruptcy, you may be able to close on it relatively quickly. Because it is a liquidation approach, you may have to sell some of your assets and pay off debt with the amount you make. Whatever debt is leftover is forgiven, unless there is a lawsuit or fraud claim. This is the quickest way to close your bankruptcy file and can take four months on average if there are no complicating factors such as fraud.
Chapter 11 and Chapter 13 bankruptcies will remain open much longer than a Chapter 7. Chapter 11 files could remain open for up to five years, and a Chapter 13 can remain open even longer, closer to seven years. This is because the repayment plans must be completed before the file can be closed by the courts.
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