There are as many motivations for declaring bankruptcy as there are filers, and your unique reasons might dictate your choice in the type of bankruptcy you choose to file. There are two basic types of bankruptcy available and they are both named after the bankruptcy code number. Chapter 7 and chapter 13 bankruptcies are very different in nearly every area and it pays to understand a bit about each before you make your decision. Read on for a basic comparison of both types of consumer bankruptcy and choose the one that's right for you.
Chapter 7 Bankruptcy
This is likely the most common form of bankruptcy filed and it's easy to see why. There is almost no other legal way to rid yourself of debt in such a short period of time as with a chapter 7 filing. In most cases, the entire process is over within a matter of months and you are then ready to make your fresh financial start.
This type of bankruptcy is known as a liquidation action, however. A chapter 7 bankruptcy filing does carry with it the potential for losing property, but much of that risk can be mitigated using exemptions. The bankruptcy trustee is empowered to seize property in an effort to help pay back some of the debt you are trying to unload. If you have a lot of property, such as real estate, vehicles, and more, speak to your bankruptcy attorney about what you might have to lose by filing a chapter 7 bankruptcy.
On the upside, if you have a lot of credit card debt, and so many people do, this form of bankruptcy has the potential to wipe out all of it in a single act. Once you file your bankruptcy, no more debt collection activity is permitted and you need not make any more credit card payments.
Another major difference in chapter 7 and chapter 13 is the means test. Filers whose income exceeds that of their state's median might not be able to file this form of bankruptcy.
Chapter 13 Bankruptcy
If you feel strongly about taking responsibility for your debt woes, chapter 13 may be right for you. This form of bankruptcy is known as a reorganization plan and it allows you to work with creditors to pay off your debt.
You might be able to have some late fees and other penalties reduced or forgiven and be given more time to pay off your credit card, mortgage, auto loans, and other types of debt. This type of bankruptcy can go on for several years, depending on how much you owe and your repayment schedule.
There are no income restrictions for filing a chapter 13 like there are with a chapter 7, so this might be the route to take if you cannot qualify for a chapter 7 due to having too much income. Additionally, those with lots of property holdings might be more interested in a chapter 13 bankruptcy, since there is no potential for a loss of property as there might be with a chapter 7.
This decision can create issues that will continue to affect you for many years, so speak with a bankruptcy attorney, like Charles J Schneider PC, to learn more about both of these types of bankruptcies.Share