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 assets.
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 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 Of Regular Income
What it is: Repayment of creditors through monthly disposable income.
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 great 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 lose cherished property in a Chapter 7 bankruptcy.
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