Filing for personal bankruptcy in the United States typically allows the average person two distinct options. Chapter 7 bankruptcy and Chapter 13 bankruptcy each have their own unique benefits and drawbacks, depending on the individual case. Kentucky residents considering filing for bankruptcy are encouraged to understand the difference between the two and, if necessary, to seek out support from an experienced attorney in determining the course of action that is best for them.
A Chapter 7 bankruptcy filing is also known as "liquidation bankruptcy," as it involves the sale (or liquidation) of assets to pay down creditors. This is handled by a bankruptcy trustee appointed by the court. Once the filing is discharged, remaining unsecured debts are typically wiped out. This process takes roughly six months at maximum but requires the individual filing to pass a means test (comparing their income to the average income in their state) and to attend credit counseling.
Chapter 13 is designed for people who may have the capacity to pay back their own debts on a long enough timeline. Chapter 13 involves working with a bankruptcy trustee to repay debts based on a three-to-five-year plan, while still keeping up with their normal bills. This plan must be approved by a bankruptcy judge in order to go into effect.
The descriptions above provide only a high level explanation of Chapter 7 and Chapter 13. For more details, Kentucky residents can reach out to a bankruptcy attorney who can help to further explain the individual processes involved in each bankruptcy type. This, in turn, allows an individual thinking of filing to make an informed, educated decision for his or her financial future.