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What is the basic difference between the two forms of personal bankruptcy?

Fitch Ratings—one of the three major credit rating agencies in the United States—recently released a report predicting that the total number of personal bankruptcy filings will significantly decrease in 2014. The report notes that the number of filings is currently 12 percent lower than last year, and that the number of bankruptcies is expected to be less than one million. If so, that would be the first time in seven years.

What exactly is causing the increase? It’s hard to say, but naturally the unemployment rate and the overall state of the economy are connected to the number of bankruptcy filings. Consumer spending and debt are also related factors. Nowadays, it seems consumers are generally on a more conservative trend, which means less accumulation of debt and less overall financial stress. 

Chapter 7 and Chapter 13 bankruptcy have different ways of dealing with consumer debt. Whereas Chapter 7 works by liquidating non-exempt assets and using the proceeds to pay off debtors, Chapter 13 works by putting the debtor on a repayment plan appropriate to their circumstances and managing the plan over a three to five year period of time. At the end of both forms of bankruptcy, it is possible to have remaining debt discharged, provided everything is in order. The key is cooperating with the court throughout the process.

Debtors who are interested in learning more about the differences between these two forms of personal bankruptcy can consult the U.S. Courts website or speak with an experienced bankruptcy attorney. Working with an experienced attorney can help make the process of bankruptcy easier to navigate and ensure one’s interests are protected.

Source: Reuters, “Fitch: U.S. Personal Bankruptcy Filings to Drop to Lowest Level in 7 Years,” September 8, 2014. 

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