Many Arizona citizens are familiar with the general concept of bankruptcy, but are not sure exactly what the process entails. Federal law includes two different statutes that allow consumers to receive debt relief by filing for bankruptcy. These are called Chapter 7 and Chapter 13 bankruptcy. A person’s credit report will be affected for 10 years with Chapter 7 or up to seven years with Chapter 13.


Chapter 7 bankruptcy is far more common than Chapter 13. More than two-thirds of U.S. bankruptcies are filed under this statute. When a person files for Chapter 7 protection, assets are taken and sold in order to pay debts. Debts are discharged and the process can take only a few months.


A Chapter 13 bankruptcy takes longer and can be far more complicated. However, it also allows consumers to retain some of their assets or avoid foreclosure. The court will appoint a trustee who will then establish a strict budget for the consumer to follow. Money will be taken each month and used to pay debts according to the establish budget. Some portion of unsecured debts will be discharged. Many people who file for Chapter 13 protection do not make any payments on unsecured debts. However, certain debts, including alimony or child support, may not be discharged. The process usually takes between three and five years.


Which type of bankruptcy is best depends on a person’s overall financial situation. A Phoenix bankruptcy attorney may be able to review the different options and determine the most adequate approach. Once a decision is made, an attorney can file the necessary paperwork and walk clients through the process in order to reduce confusion.


Source: Fox Business, “Chapter 13 Bankruptcy: How it Works“, Susan Ladika, May 09, 2013