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There are two basic types of bankruptcy for individuals: Chapter 7 and Chapter 13.
The major difference between them is as follows:
Chapter 7 takes approximately 120 days to complete and automatically discharges most debts. Child Support, spousal support, taxes more recent than 3 years, debts incurred as a result of fraud, etc., are not dischargeable. On the whole, Chapter 7 is cheaper and quicker than a Chapter 13.
Chapter 13 takes 3 - 5 years and involves partial payments to your creditors. For example, you will pay 20 cents on the dollar to your creditors for three years. At the end of that period, whatever amount is not paid is discharged. The advantage of Chapter 13 is that more debts can be discharged and more property can be protected. Under Chapter 7 there are statutory limits for the amount of property that a person can keep. The limits usually do not come into play in a Chapter 13 bankruptcy. In addition, a Chapter 13 bankruptcy is slightly less damaging on your credit report.
Clients frequently ask how a bankruptcy will affect their credit. Both a Chapter 7 and a Chapter 13 will stay on your credit report for 7 years. However, this does not necessarily mean you will be unable to obtain credit. The decision to lend money or provide credit is strictly the lender's. They usually examine your income and debts and payment history. With a bankruptcy you will obviously have no debts, thus the creditor may be inclined to give you a loan. However, it will most likely be at a higher interest rate. There are some mortgage companies in town who allow their loan officers to give mortgages to individuals who have filed as recently as nine months prior.
More information:
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Last modified: July 24, 2000
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