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Chapter 7 bankruptcy is referred to as a “straight” bankruptcy or a “liquidating” bankruptcy. The trustee looks at the bankruptcy estate to find “non-exempt” assets which can be sold to pay debts. Your attorney will list exemptions, allowing you to keep most, if not all of your property.
The majority of Chapter 7 bankruptcies are “No Asset” bankruptcies, meaning there are no assets for the trustee to take and sell. You keep your property. This chapter works well for people who have modest incomes and have few assets.
Chapter 13 bankruptcy is referred to as a “A Re-Organization of Debt for an Individual with a Regular Income.” The debtor keeps all his property because he is paying his debts under a court approved “Plan of Re-organization.” To fund the plan, the debtor must have sufficient excess income after the necessities of life are paid. These plans last for 3 to 5 years. These plans allow people with assets beyond the normal exemptions to keep their property and reorganize their debts within the 5 year plan. This serves as a perfect solutions for those with incomes who need time to pay back debt that they may have accumulated from a mortgage or tax lien.
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