Bankruptcy is a solution many people use to resolve overwhelming debt obligations. There are often a few factors that happen before people file for bankruptcy. Someone unemployed may face lots of medical debt after a sudden injury. Or, overspending may lead to late fees, which can eat away at people’s savings.
When someone files for bankruptcy, they have a few options. People often file for either Chapter 7 or Chapter 13 bankruptcy. While both of these tools can help resolve debt obligations, they both work in very different ways. As you explore your bankruptcy options, here’s what you should know:
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is one of the most popular, quickest and easiest forms of debt relief. This bankruptcy option can resolve unsecured debts, such as medical bills, credit card debt and personal loans. A successful Chapter 7 bankruptcy filing can clear away most debts.
Liquidation bankruptcy is another name for Chapter 7 bankruptcy. Liquidation bankruptcy means certain non-exempt assets, such as art collections and sports cars may be liquidated to satisfy creditors. However, most people who qualify for Chapter 7 don’t have any assets liquidated.
What is Chapter 13 bankruptcy?
People with regular incomes may seek bankruptcy because their debts are hard to recover from. Chapter 13 bankruptcy helps organize debts and create a payment plan for filers.
People who file for Chapter 13 bankruptcy often have a better chance of catching up on their debt and retaining assets – including their cars and homes. Past-due payments can often be added to payment plans. Filers have around 3 to 5 years to resolve their debts after a successful Chapter 13 filing.
The important thing to remember when filing Chapter 7 or Chapter 13 bankruptcy is that filers intend to resolve their debt obligations. This does come with some consequences. For example, bankruptcy will affect a debtor’s credit score for a little bit of time after a successful filing. And, there is often a waiting period before people can file for bankruptcy following a previous filing. If you’re in debt, learning more about your bankruptcy options may help you see a path out of your situation.