When you reach the realization that you need to file for bankruptcy, you will have a path toward financial recovery ahead of you. Personal bankruptcy is a valuable tool for those facing aggressive collection efforts or feeling worried about the ever-growing shortfall in their household budgets.
As an individual considering bankruptcy, you will likely need to choose between a Chapter 7 bankruptcy and a Chapter 13 filing. Farmers and fishermen could also potentially file a Chapter 12 bankruptcy. For most people, the decision will clearly be between Chapter 7 and Chapter 13 proceedings.
How do you determine which form of individual bankruptcy is better for your current circumstances?
When people choose Chapter 7 bankruptcy
Some people call a Chapter 7 bankruptcy a liquidation bankruptcy. The process involves creating a comprehensive inventory of your assets but rarely does it involve actually losing assets to repay your creditors since you are allowed to generally protect all of your assets.
You can apply state or federal bankruptcy exemptions to protect some of your property, like equity in your home. The court looks at income and expenses as part of the process. A Chapter 7 bankruptcy can be a quick and effective way of getting rid of unsecured debt like credit card balances and unpaid hospital bills.
When people prefer Chapter 13 bankruptcy
Some people file Chapter 13 bankruptcy because they simply do not qualify for Chapter 7 proceedings. Their income is too high, or possibly they filed for bankruptcy several years ago and would need to wait longer if they wanted to file for Chapter 7 bankruptcy.
Chapter 13 Bankruptcy can be used to pay missed mortgage or car payments over time. Chapter 13 bankruptcy can also help those who feel uncomfortable about bankruptcy by making payments to creditors. Chapter 13 proceedings are also particularly valuable for those with significant personal property. If you have assets that you don’t want to risk in a chapter 7 bankruptcy, a Chapter 13 or wage-earners bankruptcy may be the better solution for your circumstances.
Understanding the key differences between Chapter 7 and Chapter 13 bankruptcy proceedings can help you decide which is better for your household.