Exploring Your Bankruptcy Options

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If you are drowning under a sea of debt, then you might be seriously considering bankruptcy. However, there are actually two different kinds of bankruptcy, and they are very different in how they play out. To help you decide which is best for you, here is a comparison of Chapter 7 and Chapter 13 bankruptcies.

What is the ultimate result?

With Chapter 7, some of your assets will be sold off and all applicable debts will be erased. Debts that are not erased include mortgages, which tend to stay with you after bankruptcy. However, this only applies if you actually keep the home. If you do not keep the home, the burden of paying the mortgage may be removed.

With Chapter 13, you will participate in a repayment plan, where the terms of your debts will be renegotiated. You will make scheduled payments that will be distributed amongst your creditors.

How long do they take?

Chapter 7 is often completed in well under a year and can be as short as a few months.

Chapter 13 can take several years, and will end once you have met your repayment requirements.

How much impact will they have on your life?

Chapter 7 is quite intrusive and involves a detailed examination of your assets. The court will want to know how much money you have so that they can sell off your non-essential assets to appease your creditors. Some examples of essential assets include a car for transportation, a home, and a small amount of money to cover food and unforeseen circumstances. The exact determination of what you are allowed to keep often varies from case to case and will be based on an extensive examination of your financial means and assets. 

Chapter 13 involves a similarly deep inspection of your financial affairs and it does last longer than Chapter 7, but you will also be allowed to keep your assets. With Chapter 13, you will need to continue to participate in the repayment plan for years and you will need to actively work towards paying off your debt instead of having an external party work towards that goal in your stead.

What are the requirements for each?

In order to qualify for Chapter 7 by default, your income needs to be lower than the median income for your state. If you make too much money, then you will either need to pass additional requirements or be directed to file for Chapter 13 instead.

As for Chapter 13, you mostly just need to prove that you make enough money to participate in a repayment plan.

How long will each stay on your credit score?

Bankruptcies can stay on your credit report for up to 10 years, but there are some exceptions. If you file for a particularly large loan or apply for a high-paying job, then your bankruptcy may be visible for longer than 10 years.

To learn more, contact a bankruptcy lawyer