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Chapter 7 bankruptcy is a powerful way to erase consumer debt

In Washington as elsewhere, two broad categories of bankruptcy filings that are most often used are those for businesses or for consumers. Chapters 7 and 13 are used most often for consumer filings whereas businesses commonly make use of Chapter 7 and Chapter 11. The dichotomy is sometimes described as the difference between a business filing and a personal bankruptcy.

These lines can be crossed at times, but the circumstances for doing so are complicated and are best understood in consultation with a bankruptcy attorney. Chapter 7 is the simplest kind of bankruptcy to plan or chart out. It does not generally involve paying back debt; instead, the process discharges permanently and quickly all unsecured debt owed by the individual or married couple.  After filing a Chapter 7, a meeting is scheduled and held with a bankruptcy trustee and the discharge is issued not long thereafter if there are no complications.

Chapter 13 is for consumers who are qualified to enter into a payment plan with their creditors. It is a powerful tool for persons who are facing repossession or foreclosure on their property. Chapter 13 compels the secured creditors to abstain from taking the property and to accept payments on the account. If the individual successfully makes payments and obtains a final discharge, the account is fully reinstated.

In a Chapter 7, individuals face a liquidation of assets and payment of the proceeds to their creditors. However, this rarely happens because various exemptions are allowed by law. Through the exemptions and legal pre-bankruptcy planning, the individuals usually retain their personal belongings, electronics, furnishings and even their vehicles and home when the payments are kept up on the loan payments.

Exceptions to the foregoing Chapter 7 rules and their application to one's situation are matters for discussion with an experienced consumer bankruptcy attorney practicing in the state of Washington. In nearly all instances, the individuals will understand their exemptions and whether they will relinquish any assets under both Chapter 7 and Chapter 13 prior to deciding to file. They will also go over the means test with the attorney to assure that they are qualified to file a Chapter 7.

Source:, "Going bankrupt? Here's what really happens when you file for bankruptcy", Joyce Ohikuare, May 3, 2018

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