The two main types of consumer bankruptcies are Chapter 7 and Chapter 13. When determining which bankruptcy is right for you it will be necessary to evaluate which types of debts you carry, as this will have a bearing on which chapter is best for your situation.
There are two types of debt to consider:
- Secured Debt: This type of debt is backed by a mortgage, a pledge of collateral, or another lien. The secured creditor has the right to take and hold or sell certain property such as a home or an automobile to satisfy some or a portion of debt owed.
- Unsecured Debt: This refers to any type of debt that is not collateralized by a lien on specific assets belonging to the borrower. For example, unsecured debt may include medical bills, credit card debt, personal loans and utility bills.
Discharging Debt through Bankruptcy
A bankruptcy discharge releases the debtor from personal liability for specific types of debts. Once a debt is discharged through a Chapter 7 or Chapter 13 bankruptcy, the debtor is no longer legally required to pay any of the debts that have been discharged. The discharge acts as a permanent order which prohibits the creditors from taking any form of collection action against the debtor on the discharged debts.
Chapter 7–or liquidation bankruptcy–is an excellent option for debtors who have a large amount of unsecured debt or old taxes. Debtors with a lot of medical bills or credit card debt may benefit dramatically from a Chapter 7 bankruptcy, especially since it allows qualifying debtors to erase or wipe out unsecured debt. On the other hand, debtors who are at risk of losing their home to a foreclosure may be better-served by a Chapter 13 bankruptcy, which allows them to keep their home and property as they make payments through a repayment plan.
Need help navigating the bankruptcy process? In order to determine which bankruptcy is right for you, it is crucial that you seek legal counsel as soon as possible. Contact us now to schedule a free initial consultation with an Orange County bankruptcy attorney from 1st California Law, Inc.
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