Chapter 7 and Chapter 13 Bankruptcy: A Comparison
"There are instances when it becomes impossible to pay your bills. Although you may have every intention of paying off your debt, you may simply lack the resources to do so. If you are unable to pay your debts, you may need to contemplate declaring bankruptcy. Ideally, you will have considered your alternatives, but there are times when filing for bankruptcy is your best option. The question then becomes whether Chapter 7 or Chapter 13 best meets your financial requirements. Your current circumstances will help you determine the optimal course of action.The vast majority of consumers opt for Chapter 7 bankruptcy. There are numerous distinctions between these two filing categories. Chapter 7 does not require you to develop a repayment strategy. Rather, your debt is not instantaneously canceled. A trustee will instead liquidate your non-exempt assets to pay off your debts. It is imperative that you realize that, if you file for this type of bankruptcy, you may lose any property you currently own.In contrast, Chapter 13 does not require you to liquidate your assets to repay your creditors. Instead, you devise a plan to repay all or a portion of your unsecured debt. This is accomplished through the court system, and payments are made over a period of 36 to 60 months. As with the other chapter of consumer bankruptcy, the amount you repay your creditors must be equal to or greater than what they would receive if you liquidated your assets. If you adhere to your repayment plan, the remainder of your unsecured debt will be discharged.If you have lost your job and have no way to repay your debt, you should probably file for Chapter 7 bankruptcy. However, if you can still meet some of your monthly obligations but cannot pay off all of your debt, you may want to consider filing for Chapter 13 bankruptcy.You must have a thorough understanding of the long-term effects of declaring bankruptcy. Whether you declare bankruptcy under Chapter 7 or Chapter 13, there are financial repercussions. You are signaling to your creditors that you cannot be relied upon to pay off your debts by filing for Chapter 7 bankruptcy. In the future, you will have difficulty locating lenders willing to lend you money. This will be crucial if you ever need a new vehicle, mortgage, or even a credit card.Chapter 13 has less of an effect on your credit score overall. Since you are still repaying your debt, albeit in a restructured form or at a reduced interest rate, creditors view you as a lower financial risk than someone who has had all of their debt eliminated through Chapter 7 bankruptcy.Be aware that there are certain types of debt that cannot be discharged under either chapter of bankruptcy, so ensure that you have a thorough understanding of the laws, particularly in light of the significant changes that have been made to these laws in recent years.There are advantages and disadvantages to each petition method for consumer bankruptcy. Before committing to either option, you should sit down with a financial advisor and thoroughly discuss your obligations and alternatives. By comparing the advantages and disadvantages of both options and basing your decision on your current circumstances, you will be able to readily determine which path to take.
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"Chapter 7 and Chapter 13 Bankruptcy: A Comparison"
was written by Mary
under the Finance / Wealth
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comments. The article was created on 03 June 2023
and updated on 03 June 2023