When you’re facing overwhelming debt, it can hard to see a light at the end of the tunnel. In fact, you might’ve spent the last several years trying to claw yourself out of debt only to fall deeper into the hole. But dipping into your retirement savings, toiling away at two or three jobs, and sacrificing your future for the sake of repaying debt probably isn’t your best course of action. After all, personal bankruptcy might give you the debt relief and the fresh financial start that you need.
But as you consider pursuing personal bankruptcy, you’ll find that there are two main types that you can pursue: Chapter 7 and Chapter 13. What’s the difference between them and which one should you pursue? Let’s take a closer look.
The basics of a Chapter 7 bankruptcy
A Chapter 7 bankruptcy is oftentimes referred to as a liquidation bankruptcy. This is because through Chapter 7, you sell many of your assets to repay creditors as fully as possible, with most, if not all, remaining debts being discharged. Although the thought of selling off your assets can be stressful and downright frightening, there are a number of bankruptcy exemptions that allow you to keep certain assets so that you have some financial stability once the process is finalized.
Chapter 7 bankruptcy, then, can help you quickly rid yourself of burdensome debt, giving you a truly fresh start as you move onto the next chapter of your life. Although you’ll lose some of your assets, you’ll still be able to keep some of them to give yourself stability post-bankruptcy.
The basics of a Chapter 13 bankruptcy
A Chapter 13 bankruptcy can also provide you with significant debt relief, but in a differing way. Here, you restructure your debt so that you have a plan to repay creditors over a period of, typically, 3-5 years. If you successfully complete that repayment period, then many of your remaining debts may be discharged.
One benefit of a Chapter 13 bankruptcy is that it allows you to keep your assets. Therefore, this can be an appealing course of action for those who don’t want to sell their assets or for those who simply make too much money to qualify for a Chapter 7 bankruptcy filing. Also, Chapter 13 bankruptcy may give you a better opportunity to keep your home, since you can stay foreclosure proceedings and make up missed payments over time rather than having to make a lump sum payment.
Which bankruptcy option is best for you?
That’s a question that only you can answer. However, before deciding, you need to know the law and how it applies to your set of circumstances. You might find that your options are limited based on the results of the means test, which gauges your income and your eligibility for a Chapter 7 filing. If you can choose either avenue, though, then you’ll want to think about what you want your life post-bankruptcy to look like, as this might help you determine which bankruptcy type is best for you and your future.
Do you have lingering questions about the bankruptcy process?
If so, don’t be afraid to ask them and to seek out the answers and guidance that you need. Afterall, pursuing bankruptcy is a major life decision. So, educate yourself, think about your future, and seek out any assistance that you may need to bring your vision of the future into reality.