When facing overwhelming financial challenges, it is important to know that you have options available to help regain control of your financial situation.
Two common avenues for individuals seeking relief from debt are Chapter 13 and Chapter 7 bankruptcy. These two options have distinct differences, and understanding them is important for making an informed decision.
Chapter 7 Bankruptcy offers a fresh start
Chapter 7 bankruptcy is often referred to as liquidation bankruptcy. In this process, an appointed trustee sells non-exempt assets to pay off creditors, and most unsecured debts get discharged. Chapter 7 is typically a faster route to debt relief and suitable for those with limited income or few valuable assets. Cons for this type of bankruptcy include that non-exempt assets may get sold to repay creditors, and not everyone qualifies for Chapter 7 bankruptcy as income and expenses determine eligibility.
Chapter 13 bankruptcy creates a repayment plan
Chapter 13 bankruptcy, also known as reorganization bankruptcy, is a structured repayment plan designed to help individuals with a regular income regain control of their finances. This option is suitable for those who want to keep their assets and catch up on overdue payments, such as mortgages or car loans. Under Chapter 13, a debtor proposes a repayment plan to the court, and creditors receive partial payment over a specified period. This type of bankruptcy takes longer to complete, and debtors must adhere to a strict budget during the repayment plan.
For approximately 374,000 people each year, bankruptcy offers the relief needed. When determining which bankruptcy chapter is right, your financial situation and future goals should factor into the decision.