First, it is prudent to consult with a bankruptcy or debt relief attorney to determine your eligibility for each option. The amount and scope of your debt will determine your eligibility.
Chapter 7 bankruptcy is commonly filed by debtors with few personal assets and no liquid assets.
• The individual or couple has little money remaining after covering essential living expenses. • Most unsecured debts can be discharged in full under Chapter 7 bankruptcy. Government-backed student loans are an exception to this rule.
• A person may retain their furniture, automobile, and any other essentials for a normal life. They may be able to retain or remain in their home.
• It is a swift procedure, and debts can typically be completely discharged within a few months.
• Creditors are prohibited from contacting debtors pending discharge. Unwanted phone conversations cease.
Chapter 13 • A person has significant equity in their property and wishes to keep it. • They are able to pay their living expenses but are unable to keep up with their other debt payments.
• The debtor is permitted to retain their home and personal property while the debts are spread out and distributed to creditors by a trustee or administrator. • Generally, the debts are allowed to be paid off over a period of three to five years under the direction and control of the trustee.
• During the extended repayment period, the trustee receives a single monthly payment. During this time period, creditors are prohibited from contacting the debtor.
Both chapter 7 and chapter 13 remain on a credit report for seven to ten years. This may seem like a long time to carry a negative mark on one's credit history; however, if you consider the alternative - that a person with a $25,000 credit card balance making minimum payments will take at least ten years to pay it off and will likely miss payments along the way - bankruptcy is not such a bad option. The individual who files either chapter has a new beginning. The Chapter 7 debtor receives an immediate reprieve, while the Chapter 13 debtor receives a restructured payment plan, but both are able to immediately begin rehabilitating their credit.
With the newly available funds, a savings account can be established at a bank or credit union. The balance can be used to obtain a secured credit card from the institution. As long as they pay the entire balance on time each month, their good conduct will be reported to Trans Union, Equifax, and Experian, the three credit reporting agencies. This will initiate an increase in their FICO score. Other financial institutions will take note, and credit offers will flood in. The prudent individual will disregard them until they can obtain an unsecured line of credit at their current bank.
For Chapter 7 or Chapter 13, an experienced bankruptcy attorney can determine eligibility, but the following are general guidelines:
• Under Chapter 7, an individual or couple must pass a means test that determines their ratio of income to debt. Prior to filing, they must obtain qualified credit counseling.
Individuals with unsecured debts of less than $360,475.00 and secured debts of less than $1,081,400.00 qualify for Chapter 13.
A lawyer can assist a client in filing for either chapter of personal bankruptcy. Once bankruptcy is filed, a debtor experiences a newfound liberation that would not have been realized for many years, if ever, by a person buried in mountains of unsecured debt.
Is Chapter 7 bankruptcy superior to Chapter 13 bankruptcy? Chapter 7 offers an immediate discharge, while Chapter 13 is a reorganization of debts. Chapter 13 has a high failure rate due to registrants' lack of self-discipline. If choosing is even an option, Chapter 7 appears to be the best option, but your attorney can help you make the correct decision. In some instances, neither debt consolidation nor debt settlement may be the optimal solution. This is why credit counseling is necessary. In New Jersey, debt settlement companies must be charitable organizations.
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