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Many Floridians have a misconception of bankruptcy and think that it will cancel all of their debts. However, the two types of bankruptcy, Chapter 7 and Chapter 13, differ significantly in that regard. Chapter 13 bankruptcy can take as long as five years in some cases. The process allows people to keep their homes and work around student loans, according to one bankruptcy trustee.

In 2012, about 1,175,000 people in the nation filed bankruptcy with about 30 percent filed as Chapter 13. Chapter 7 bankruptcies take much less time, and debt is cancelled in most cases. However, the person must sell their assets. Chapter 13 takes much longer, and individuals adhere to a budget with the help of a court-appointed bankruptcy trustee.

Because of social traditions and financial reasons, the South relies more on Chapter 13 bankruptcy. Southerners could place more value on their responsibility to repay their debts, according to one bankruptcy lawyer. More than half of bankruptcies in six southern states were Chapter 13 filings in 2012.

A person considering bankruptcy will first need to attend credit counseling. The counselor will review the client’s financial circumstances and help the person decide the best course of action. If the person earns above the average income for the state, they must compare their income and expenses. If they can pay some unsecured loans, they will need to do so via Chapter 13 bankruptcy.

Chapter 13 provides the advantage of allowing people to catch up on delinquent house payments. However, some people dislike the lengthy process and do not want to wait five years to finalize a bankruptcy.

When someone is considering filing for debt relief, they may not know the difference between Chapter 7 and Chapter 13 bankruptcy. A bankruptcy lawyer might be able to help clients determine the best course of action for their situation.

Source: Fox Business, “Chapter 13 Bankruptcy: How it Works”, Susan Ladika, May 09, 2013