Deciding which type of bankruptcy is best for Michigan residents takes an understanding of each kind. While many different types of bankruptcy declarations exist, two of the most common are Chapter 7 and Chapter 13.
The U.S. Bankruptcy Code defines Chapter 7 as a liquidation bankruptcy. Chapter 7 does not require a repayment plan. Instead, it takes the debtor’s assets, sells them and uses the proceeds to repay what the debtor owes. Chapter 7 is a common choice for people with excessive credit card or other types of debts, who do not make enough income to fulfill a repayment plan. Businesses may also file for this type of bankruptcy.
Chapter 13 bankruptcy, on the other hand, is a type of debt reorganization. Declaring Chapter 13 bankruptcy places the debtor on a court-approved repayment plan. Over three to five years, the debtor will repay what he or she owes in installments. Most plans are three years long, but may extend to five if a judge deems it necessary. No plan may exceed five years, however. Only individuals and sole proprietors, not businesses, may seek this type of bankruptcy.
Many people choose Chapter 13 bankruptcy over Chapter 7, if it is an option. While this type will take the debtor longer to get out of debt, it allows him or her to keep assets such as a home or vehicle. Chapter 7 is also a viable option for starting over, however, if the debtor does not have adequate income to meet the terms of a repayment agreement. Liquidation vs. reorganization is an important difference between Chapter 7 and Chapter 13 bankruptcy.