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Chapter 7 - also known as "liquidation" or "straight bankruptcy", Chapter 7 discharges many of your debts, such as credit cards, medical bills, personal loans, repossession debt and most court judgments. You are still responsible for student loans and most taxes, and you must continue to make car and mortgage payments. In addition, you are still responsible for alimony and child support obligations, in addition to certain other categories of debts. Chapter 7 allows you to protect a certain amount of equity in your home without the risk of liquidation by the Chapter 7 Trustee. The equity in certain other types of assets are exempt up to various amounts.
Chapter 13 - also know as "reorganization", requires you to pay back all or a pro-rated portion of your debts over 3 to 5 years. It provides immediate relief from phone calls from credit card companies and other creditors, and stops repossession or foreclosure as long as you meet your Chapter 13 obligations. Essentially, Chapter 13 is a court supervised repayment plan of your debts. Under a Chapter 13, your debts are consolidated and you make monthly payments to a Trustee, who in turn disburses your money to creditors. The amount of debt that your must pay back depends on a number of factors, including your income, monthly living expenses and how much property you own. Continued on Page 2 >>
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