There are two categories of personal bankruptcy applicable to consumers. Chapters 7 and 13 respectively. Both are intended to help eradicate debt, but they operate quite differently. Chapter 7 bankruptcy, also known as credit card bankruptcy, is primarily a form of financial reorganization. The consumer retains all property, but must make monthly payments for three to five years to repay all or a portion of the debts. There are numerous exceptions that vary from state to state, and in certain instances, property may be seized.
Chapter 13 is typically referred to as a wage recipient bankruptcy. In this situation, the consumer must have a reliable source of income that can be used to repay a portion of debts. There are also limits on secured and unsecured loan amounts. As part of the repayment plan, it is possible to avoid property foreclosure by making up delayed payments.
Due to 2005 law changes, not only is it more difficult to file for bankruptcy, but it no longer eliminates all debt. There are numerous limitations on what may and may not be included in the proceedings. Not included are alimony, past-due child support, student loans, and certain tax obligations. The current stringent requirements are the result of credit card companies' lobbying efforts, as they believed that consumers were exploiting the system. It is no longer the simple solution it once was for the consumer with severe, unpayable debt.
The court is primarily responsible for determining the amount of bankruptcy debt in collaboration with creditors. The proposed quantity to be paid back to creditors varies, as do decisions regarding property seizure. It is a highly individual process that also requires a strong constitution and legal counsel.
Creditors would much rather collaborate with a consumer through alternative debt relief methods. A bankruptcy debt is one of which they may receive a minor portion or none at all, and they will frequently negotiate the principal amount to increase the return on their loan. The bankruptcy debt and proceedings are difficult and time-consuming. Both consumers and creditors recognize that there are superior methods of operation.""
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