Which Is Better For Me: Chapter 7 Or Chapter 13?
So, you think you need to file personal bankruptcy. Take a deep breath. While bankruptcy in most cases should be a last resort, it can give you a fresh start financially, removing the burden of debt and allowing you to rehabilitate your credit score.
The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.
Chapter 7: Liquidation
What it is: Repayment of creditors through liquidation of nonexempt property.
Pros: You can eliminate the most unsecured debt in Chapter 7 bankruptcy (i.e. credit cards, medical bills, and personal loans). The process from filing to discharge of debts usually moves quickly (three to four months). Creditors are prevented from contacting you on prebankruptcy debt obligations during the pendency of the bankruptcy case.
Cons: Your credit cards will be canceled, and you may have to forfeit some of your property. Purchasing real estate will prove difficult for two to three years. The bankruptcy will remain on your credit report for up to ten years.
Consider if: You meet the income requirements and don’t have significant non-exempt assets.
Chapter 13: Adjustment Of Debts For Individuals With Regular and Stable Income
What it is: Repayment of creditors through monthly payments based on income less allowable expenses.
Pros: In most cases, you are able to retain all of your property, including non-exempt property. No further worries about creditor harassment and interest stops accruing during the pendency of the repayment plan.
Cons: It takes discipline to stick with the repayment plan.
Consider if: You’re living comfortably on your salary but have trouble making regular payments to your unsecured creditors. Would otherwise lose cherished property in a Chapter 7 bankruptcy.
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