Posted on: 26 December 2014
Filing for bankruptcy is a complex process. It's further complicated by the stress you feel due to your financial pressures. Your first step is to talk to a bankruptcy attorney, so you understand your options and how the process will affect you and your possessions. You can choose between a Chapter 7 and Chapter 13 bankruptcy. These are the differences between the two.
Qualifying For Bankruptcy
If you've had a drop in income, and your debts far exceed your ability to pay them, Chapter 7 may be your best choice because it wipes out certain types of debt. However, if you currently have a qualifying level of income, you may be forced to file Chapter 13 instead. With Chapter 13 bankruptcy, all of your debts are restructured, so you pay all or part of them depending on your income. Keep in mind, there are certain types of debt, such as taxes, student loans, and child support that cannot be erased through bankruptcy.
Advantages Of Chapter 13 Bankruptcy
While Chapter 7 may be the way to go if you need to erase your debts due to low income, there are benefits to filing Chapter 13. With Chapter 13, you'll get to hold on to most of your assets. You'll also be allowed to reorganize your debts, so you can get caught back up on car loans or your mortgage. This can help you avoid a foreclosure or vehicle repossession. The court will decide on how much debt you need to repay, and you will make payments to the court for a few years until all your back debt is brought current. Although you'll be involved in the bankruptcy process for a few years, you'll have the opportunity to get back on your feet financially without losing your assets.
Advantages Of Chapter 7 Bankruptcy
When you file Chapter 7 bankruptcy, you can usually hold onto certain assets such as your house and vehicle. Everything else may be seized by the court to pay off your creditors. However, you will be freed from having to pay back any unsecured debt, such as credit cards and personal loans. Another advantage of a Chapter 7 bankruptcy is the shorter process you go through. You'll only be in bankruptcy for a few months, so you can start rebuilding your financial future much faster.
Things To Consider
One of the disadvantages of a Chapter 7 bankruptcy is you don't have the ability to restructure your mortgage or vehicle loan. If you are behind on payments, and the lenders won't rewrite your debt, you may not be able to hold onto the property. Also, with Chapter 7, you probably won't be able to remove liens against your property.
If you go with a Chapter 13 bankruptcy out of choice because you want to hold onto your possessions, you may be in for a few years of frugal living while you struggle to meet your monthly court payments. However, it may be possible to convert a Chapter 13 to a Chapter 7 in the future if you can't keep up with the payments.
Bankruptcy is a very individual process and you can't compare your situation to someone else you know who has gone through it. The court factors your income, debt, assets, and living expenses to determine the most fair way to solve your financial dilemma. The court considers the best interest of your creditors too, that's why you want a lawyer such as John G Rhyne Attorney At Law to help you understand the consequences of bankruptcy before you file.Share