Many people in Maryland and elsewhere assume that bankruptcy is all the same – that you apply for a personal bankruptcy, get a discharge of your debts and start over with a clean slate, albeit a mark on your credit report for several years. However, bankruptcy is not always so simple. There are different types of personal bankruptcy that can apply to people in diverse financial situations.
In a Chapter 13 bankruptcy, for instance, your debt is not fully discharged. Instead, you have the opportunity to restructure and repay your debts in a more manageable way, according to the Administrative Office of the U.S. Courts. Why would you choose a Chapter 13 bankruptcy over Chapter 7, which is knowns as the “clean slate bankruptcy” for its ability to discharge most types of debt? With a Chapter 13 bankruptcy, you may protect your home from foreclosure, as well as other qualifying assets like additional vehicles, home furnishings and appliances. Also, having a steady income may simply disqualify you from applying for Chapter 7 but allow you to utilize Chapter 13. Chapter 13 bankruptcy works in the following ways:
- A portion of your income goes to a bankruptcy trustee, who pays your creditors.
- Your debt is restructured to allow you to repay it within three to five years.
- If there is remaining debt after the repayment period is up, it may be discharged.
It is important to understand the differences between bankruptcy types before deciding which option is right for you. Since bankruptcy law may be complex, the information in this post is not meant to replace the advice of a lawyer.