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Chapter 7 vs. Chapter 13, and how a home can be affected in each

When anyone files for personal bankruptcy, they will have to decide whether they want to go with Chapter 7 or Chapter 13. These two forms of bankruptcy are very different, but in either case, they can help a debt-ridden individual (or simply someone who needs help regaining their financial footing) reclaim their fiscal livelihood.

First of all, Chapter 7 is best known for the "debt discharge" process, which allows the filer to clear out unsecured debts, like credit card debt. However, other debts are "secured" and thus can't be discharged through this process barring extreme circumstances (student loan debt is an example of "secured" debt). Chapter 13 is best known as the "debt reorganization" route. Basically Chapter 13 allows you to consolidate and reorganize your debts so that it is easier for you to repay your creditors.

Each filing comes with limitations. For example, if you cross a certain income threshold, you are not eligible for Chapter 7. On the other side, a Chapter 13 filing usually takes much longer to be completed than a Chapter 7 filing.

Now, what do these bankruptcy filings mean when a home is part of the equation?

Well, the short answer is that every bankruptcy is unique. Your personal circumstances (and many other financial wrinkles) will affect which filing you should choose. For the sake of any filer, they need to consult an experienced bankruptcy attorney to ensure they are going about the process in the right way.

More specifically though, a Chapter 7 bankruptcy could protect your home -- but if you purchased that property before the bankruptcy was filed, it could be sold to pay off your debts. Sometimes this is done as a last resort; but it can happen. Chapter 13 is far more secure in terms of keeping your home.

Source: FOX Business, "Can I Walk Away From Home in Bankruptcy?," Justin Harelik, Dec. 11, 2013

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