Chapter 7 vs. Chapter 13: Which should you choose?

There are various forms of bankruptcy available. If you are filing over your personal finances, you have two options: Chapter 7 or Chapter 13.

Understanding the differences can help you make the correct choice.

Questions to ask

The first question to ask is how much you earn? Chapter 7 is only available if you pass a means test. You generally need to earn less than the state median to be eligible.

If you pass that, the question becomes whether you can repay your debts with some restructuring. Sometimes, all you need is a helping hand to get back on track with payments.

If you believe you will be able to make payments if the lenders give you a bit of leeway, Chapter 13 permits you to apply to reorganize your payments. It can be a good choice if you are part-way through paying for things you want to keep. Lenders may even cut you some slack and reduce your overall payable total in exchange for your endeavors.

What if you cannot see yourself ever being able to pay your debts?

That is where Chapter 7 comes in. Provided you meet the income ceiling and the court approves your application, it will draw a line through your eligible debts, allowing you to start again with a clean slate. You’ll probably have to part with some of your assets, which will be sold to pay the creditors back something. Overall, however, it may be the best way to dig yourself out of the hole.

There is more to it than that, of course. Seek legal help to understand more about the best forms of bankruptcy for you..

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