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How long before Chapter 13 or Chapter 7 discharges debts?

Consumers in Michigan who are facing overwhelming debt may be considering the protection of personal bankruptcy. They may be aware of the available options, and know that some debts may be discharged, but they could be concerned about how long this process will take to provide relief. This depends on whether the consumer qualifies for Chapter 7 or Chapter 13 bankruptcy.

Consumers with little or no income would commonly qualify for Chapter 7 bankruptcy. This option is known as liquidation bankruptcy and involves liquidation of the consumer’s liabilities. Most unsecured debts will be discharged, and the proceeds of liquidation will settle some other debts. Once court procedures and documentation are completed -- a process that takes about four months -- the consumer will be able to walk away from the debts. However, while the process is underway, they will be protected against creditor harassment, foreclosures and repossession.

Consumers who have a regular income and want to avoid losing some assets in liquidation often opt to go with Chapter 13 bankruptcy. This offers the consumer the opportunity to draft a payment plan to be approved by the court. The payments would cover between three and five years where lower payments will continue. At the end of this period, the court will assess the remaining balances of allowable and unsecured debts, and discharges that are approved will occur at that point.

Although the individual’s name will remain on credit reports for some years, he or she will be able to use this time to obtain the services of advisors who could assist in the rebuilding of a good credit score by effective debt management. Michigan consumers may want to be aware that it can be beneficial to file for Chapter 7 or Chapter 13 bankruptcy. Taking control of one’s finances in this way may be the best opportunity to start over and ensure a stable financial future.

Source: Fox Business, "When is a Bankruptcy Officially Discharged?", Erica Sandberg, Aug. 4, 2014

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