It’s easy to quickly build up debt: Free credit cards can be tempting, divorce can lead to financial difficulties and medical expenses can be unexpected and outrageous.
When you have debt that you’re struggling to pay, you have several options to help you manage your finances. One of these options is bankruptcy, which itself has several different options. Many people choose Chapter 7 or Chapter 13 bankruptcy to help them manage their debts. Let’s look at some of the differences between Chapter 7 and Chapter 13 bankruptcies.
What you need to know about Chapter 7 bankruptcy
Chapter 7 bankruptcy, or liquidation bankruptcy, may be the fastest way to wipe out your debt – besides inheriting a fortune or applying for government relief programs. While liquidation allows you to quickly discharge off some of your debt, it may also require you to sell some non-exempt possession.
If your debts outweigh your assets, you may be asked to sell non-essential musical instruments (unless the debater is a musician by trade), art, a second home, a vacation home or a second car.
Exempt assets may be considered life necessities, such as furniture, clothing, work tools, medical equipment, emergency savings, funeral costs and education savings – so it’s safe to say you won’t lose everything from a bankruptcy claim.
After the liquidation process, you may find that much of your debt has vanished. Depending on how much debt you had, you may still find a small amount left behind after a Chapter 7 bankruptcy.
What you need to know about Chapter 13 bankruptcy
Chapter 13 bankruptcy renegotiations how you pay off your debt. Chapter 13 bankruptcy, also known as reorganization bankruptcy, may allow you to keep your property after completing a court-mandated repayment plan.
It is often the case that people file for Chapter 13 bankruptcy because the debater makes too much money to file for a Chapter 7 bankruptcy. Depending on how much debt is accumulated, a court-mandated repayment plan may last anywhere between three and five years.
If you’re considering filing for a Chapter 7 or Chapter 13 bankruptcy, then you may need to contact a legal advisor who can help walk you through a debt relief plan.