If the debt keeps mounting and you have found yourself drowning in bills and calls from debt collector calls, it might be time to seriously consider the option of bankruptcy. Two common programs used to eliminate debt are Chapter 7 and Chapter 13.
Introduction to Bankruptcy
There are various reasons why you would qualify for and choose one chapter over another, but one of the key factors considered is income.
Chapter 7, sometimes called liquidation bankruptcy, entails selling off most of your property to pay off debt. This form of bankruptcy is generally reserved for individuals with limited income who can’t pay back their debt.
Chapter 13, also known as reorganization bankruptcy or the working man’s bankruptcy, is the more common option for individuals who have income sufficient enough to qualify for and finish a repayment plan mandated by the court. As a result of this, you might get to keep some of your property, too.
The repayment plan allows you to pay back a portion of the debt you owe over a designated time period. After that, any remaining unsecured debts might be “discharged.” A few examples of unsecured debts include medical bills and credit cards. And in this case, discharged means you aren’t required to pay them back.
Will Filing Eliminate Credit Card Debt?
There are certain debts that bankruptcy won’t erase – such as mortgages, student loans and car loans. These are all secured debts.
However, with Chapter 13, you might be able to have the balance of some of these debts reduced through an approved payment plan.
With unsecured debts, such as medical bills and credit cards, there is an opportunity to have them “discharged” through bankruptcy. With chapter 13, unsecured debts are only discharged after completion of the court-approved repayment plan.
Am I Going to Lose My Property?
Most property is sold off to pay for debts when you file Chapter 7 bankruptcy. This is one of the distinct differences between Chapter 7 and Chapter 13.
The good news – some personal property is exempt from being sold. But both federal and state exemption rules will apply.
With Chapter 13, your assets are not sold when you file. However, you will need to catch up on late payments and get current for secured assets during your repayment plan. If you are able to do so, then you will be able to keep them after the repayment plan is complete.
How Will It Effect My Credit Score?
One of the most common fears associated with “bankruptcy” is that the credit impacts are forever. But depending on your financial situation, it might actually be better for your credit than continuing how you are.
Typically, Chapter 7 is reported on your credit report for up to 10 years and Chapter 13 for up to 7 years.
For the duration that they are on your credit report, they will have a negative impact on your credit score. However, the impact on your score does decrease over time. And you can still begin to rebuild your credit during this period by managing your debt effectively.
I Want to Apply for Bankruptcy.
Bankruptcy is a legal process that involves paperwork, court appearances and more. For these reasons, we recommend that you hire a lawyer who specializes in bankruptcy to represent you.
A bankruptcy lawyer will help you determine which chapter is best for you and guide you through the process. Additionally, their experience can help save you money by avoiding potential mistakes.
Start with a complimentary consultation today to learn more about your options and how the team at The Wright Law Alliance can help you.