Individuals struggling with debt can file for either Chapter 7 or Chapter 13 bankruptcy. Understanding the differences between these pathways can help you make an informed decision about debt.
Learn more about the differences between Chapter 7 and Chapter 13 bankruptcy.
The process of bankruptcy
Chapter 7 bankruptcy allows debtors a fresh start. If you have limited income and assets (judged by guidelines called the means test), you can qualify for discharge of eligible debts.
Chapter 13 bankruptcy allows for a chance to catch up on missed payments. If you cannot qualify for Chapter 7 filing, the court has determined you have the ability to repay some of your debt and will create a payment plan accordingly.
With Chapter 7 bankruptcy, the trustee assigned to your case by the court can seize and sell the non-exempt property to repay a portion of your debt. You can also sell property such as real estate if you want to use the proceeds to reduce your debt balance.
With Chapter 13, you can keep your assets as long as you keep up with your payment plan for the established period. Most payment plans last three to five years. However, the court can require you to repay your creditors an amount equal to the value of your retained assets.
Before moving forward with the decision to file for bankruptcy, carefully review your finances along with the laws in your state to determine whether the resulting impact on your credit score makes sense to get out from under your debt.