If you are unable to meet your household bills, you may be considering filing for bankruptcy — and you would not be alone. Many people have found it necessary to file for bankruptcy over this last year.
Generally speaking, there are two basic bankruptcy options you need to understand: Chapter 7 and Chapter 13. Let us explain the differences.
What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
The most significant difference is that Chapter 7 helps you clear the majority of your debts away all at once. Chapter 13, by contrast, enables you to reorganize your debt payment schedules into something more manageable, with the remaining debts that remain unpaid after a period of time forgiven.
Why would you opt to reorganize your debt if you could wipe it out?
There are several reasons you may opt for Chapter 13 instead of Chapter 7:
- You may have no choice in the matter. To qualify for Chapter 7, you need to come in under a financial means threshold defined by the government. An attorney can help you understand how the test works.
- You may have previously filed bankruptcy and it’s too soon to refile. If you have filed for Chapter 7 before, you cannot file again for another eight years. You would, however, be able to file for Chapter 13 four years after your Chapter 7.
- You may want to protect certain assets. Even if you qualify for Chapter 7 you may prefer Chapter 13. In exchange for the courts erasing your debts via Chapter 7, you may have to surrender certain assets that can be sold to pay your creditors part of what you owe. While this isn’t an issue for most people, you may have something — like a piece of vacation property or a special collection — that you want to protect.
Some debts, like child support, may not be covered by either Chapter 7 or Chapter 13. but filing for bankruptcy can help you eliminate enough debt that those payments are no longer overwhelming. Bankruptcy can seem complicated, yet so is continuing to live with debts you cannot pay.
