Chapter 7 is referred to as “liquidation” bankruptcy because debtors typically lose a part of their property. Chapter 7 is filed by those who have no means of paying their debts. These applicants may lose many assets in order to pay off most of their debt.
Chapter 13 is known as “reorganization” bankruptcy because consumers still have to pay back a smaller sum of their debts. When filing for Chapter 13, applicants have a chance to reorganize their debt burden. They must organize a repayment plan and the court will decide how much debt must be repaid according to the applicant's income, amount of debt, and the value of property. Generally the repayment amount must be satisfied within 3-5 years.
Sometimes applicants will not have a choice in the kind of bankruptcy they file. Certain factors, like income thresholds, may mandate the type of bankruptcy the individual qualifies for.
Individuals facing unfortunate debt burdens can use bankruptcy to "start over" and rebuild on a stronger financial footing. For those who qualify (and our Raleigh bankruptcy lawyers are available for free case evaluations), they are often anxious to get the process started and eliminate their debts. Bankruptcy is not quick. There are pre-bankruptcy procedures that must be followed. Another reason applicants want to move forward quickly with bankruptcy is that they are concerned their assets will be taken away by debt collectors. Fortunately, some assets are shielded from creditors under North Carolina law. Learn about exempt property in North Carolina.