Everyone goes through some sort of money trouble, but going bankrupt is an entirely different level of daunting. As scary and depressing as it may sound, though, declaring bankruptcy isn’t all bad. For many people, it just might be the way out of their financial woes.
Most individuals who file for bankruptcy for one reason and that reason is debt relief. What most of them don’t know, however, is that there are several types of personal bankruptcy programs available; Chapter 7 and Chapter 13, being two of the most common choices.
If you ever find yourself in a sticky financial situation, and you think that declaring and filing for bankruptcy could be the best solution for your money problems, you must work with a competent and experienced Chapter 13 or Chapter 7 bankruptcy lawyer for a higher rate of success.
Also, it would be best to educate yourself on the basics of these bankruptcy programs before you go ahead and meet with an attorney.
Chapter 7 Bankruptcy
The more popular option of the two, Chapter 7, is what you call a “liquidation bankruptcy” as it involves liquidating your non-exempt assets to pay off your unsecured debts such as medical bills, pending credit card payments, and such. Secured debts like car payments and mortgage are not covered by Chapter 7.
When you file for Chapter 7, the judge will review and study your properties and then have a trustee sell what remains of your non-exempt assets. All the money earned from the sale will be divided among your creditors, and the court will discharge any remaining or unpaid debts.
The thing with Chapter 7 bankruptcy is that, if you have barely any non-exempt assets left, then your creditors get almost nothing. But while the instant debt relief may sound like the answer to your difficult financial predicament, know that Chapter 7 isn’t for everyone.
According to bankruptcy laws, only those whose incomes fall below the state limit may qualify for Chapter 7. So, if you earn more than the designated legal threshold, you’ll have to file under Chapter 13.
Chapter 13 Bankruptcy
Chapter 13 is more of a debt reorganization. When you file for Chapter 13, the court will combine all your debts and set a more favorable three-to-five-year monthly repayment plan.
One advantage of filing for Chapter 13 is that it covers both secured and unsecured debts. Also, you won’t have to sell or give up any of your assets. It’s the more viable option for individuals whose incomes are still enough to cover an adjusted repayment rate of their debts.
If you’re earning way more than the designated state limit, but require debt relief, Chapter 13 may be for you. Late car payments? Missed mortgage obligations? Chapter 13 can buy you more time to catch up on your financial responsibilities and let you keep all of your properties as well.
Should You File for Bankruptcy?
Both of the personal bankruptcy programs discussed above offer debtors a way to bounce back from the financial crisis they’re currently in. But as appealing as they may seem, like most things in life, they are not without downsides.
After filing for bankruptcy, debtors experience a significant decline in their credit scores. Moreover, the fact that you went through bankruptcy reflects poorly on your credit and financial records and will often affect your ability to qualify for loans.
Suffice it to say, whether or not to file for bankruptcy is a colossal financial decision that deserves serious thought. Before going to court, consult with a bankruptcy attorney to ascertain the soundness of your choice. Should you decide to proceed with it, having a reliable bankruptcy lawyer handle your case will increase your chances of receiving debt relief.