Being unable to pay your debts is never a good feeling, especially if you are creating more debt for yourself by using a credit card to pay your loan payments each month.
In this case, seeking help with filing bankruptcy may be your best option for getting out of debt and starting anew with your finances. But if you’re new to bankruptcy, you may be wondering how to file for bankruptcy and what type of bankruptcy is right for you.
Individuals can file for either a Chapter 7 or Chapter 13 bankruptcy — and both have very different outcomes and consequences that you need to understand before filing for bankruptcy.
Here’s all you need to know about the key differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy:
Chapter 7 bankruptcy explained
With a Chapter 7 bankruptcy, one liquidates all their debts — with the exclusion of student debt and a few other kinds of debt — and never has to pay them back. This type of bankruptcy, while providing immediate and permanent relief from debt, requires the individual to give up their possessions to the bank; in most instances, the law allows people to keep their house and their car, however. A Chapter 7 filing will stay on one’s credit report for 10 years after it is filed, so it’s important to make sure this is the right option for you.
Chapter 13 bankruptcy explained
During a Chapter 13 bankruptcy, an individual works with the bankruptcy court to set up a debt repayment plan that is paid back over the course of five or so years. The repayment plan is made according to the individual’s income, so the payments can be affordable and manageable. Chapter 13 bankruptcies don’t require the filer to give up their possessions, and are a good option for people with higher incomes, generally.
Have you ever filed for bankruptcy before? Was it a Chapter 7 or Chapter 13 bankruptcy? Share your experiences with us by leaving a comment. Continue reading here.