In these economically challenging times, filing for bankruptcy can be a smart move to help relieve you of some creditor pressure. Maybe you’re stuck with a debt or mortgage that you’re unable to pay immediately, or you’re faced with insurmountable medical costs. Whatever the circumstances, filing for bankruptcy might be able to help.
But there are two types of bankruptcy to choose from: Chapter 7 and Chapter 13. If you’re considering declaring bankruptcy, which is the better option?
Chapter 7 bankruptcy
In Chapter 7 bankruptcy, a trustee will liquidate your assets to help pay off creditors. These assets can include your bank accounts, investments, and secondary residencies. You can retain certain exempt properties, which include household appliances and furniture, clothing, motor and pensions, among other things. Chapter 7 bankruptcies typically take up to six months to achieve a discharge and will halt creditors from attempting to collect payments from you and taking legal action against you.
Chapter 13 bankruptcy
If Chapter 7 is about liquidation, Chapter 13 bankruptcy is about reorganization. Also known as a wage earner’s plan, Chapter 13 will allow you to present a repayment plan to your creditors that involves installments over 3-5 years. This repayment plan will allow you to keep your assets as you work to repay debts, but it also means your disposable income will be used for repayment.
What are the advantages of each?
If you want a faster and more affordable approach to bankruptcy, Chapter 7 might be the one for you. But you’ll first have to prove you’re eligible by taking a means test to see if your income, expenses, and household size meet the requirements. You also must consider the risk of losing your assets to pay off your debts.
On the other hand, if you want to keep your assets or don’t qualify for Chapter 7, then Chapter 13 is for you. Having a repayment plan can stop foreclosures on your home and even address delinquent mortgage payments.
Regardless of which bankruptcy type you’re going for, consider consulting an attorney who can advise you on settling your debts or even help you pick which bankruptcy type suits your needs.