If your financial situation has worsened to the point that you are in danger of losing property to foreclosure and are unable to meet even the minimum required payments on your credit cards, bankruptcy could be right for you. You do have a decision to make when it comes to the type of bankruptcy you choose, however.
While both chapter 7 and 13 have similarities, they are very different in the way that property and debt is handled. To assist in making this important choice, read on to learn more about these two commonly used consumer bankruptcy types.
Chapter 7 bankruptcy
This type of filing is also known as a "liquidation" filing, since some of your property may be sold to provide funds to pay some of your creditors during the process. Chapter 7 is best for those who:
1. Have a low income. If your income exceeds the median income for your particular state, you may be barred from filing. To determine your chapter 7 bankruptcy filing eligibility, use a calculator that functions as a so called "means test", which may be found online.
2. Have little to no personal assets to seize. While you are allowed exemptions, which are dollar amounts that can be deducted from the value of your property, some of your assets may be seized by the bankruptcy trustee. Normally, you can keep your family home and a vehicle, but that depends on the value of the property and how much equity you may own in them.
3. Want to have their bankruptcy completed relatively quickly. A chapter 7 normally takes only a few months to be complete, depending on the complexity of your case and the court backlog in your Federal district.
Chapter 13 bankruptcy
This type of filing is known as a "reorganization" filing, since it includes a plan for paying a portion (or all) of your debts. Chapter 13 is best for those who:
1. Have more than the median income for their state. There are no income restrictions for this type of filing.
2. Have quite a bit of personal assets that you are reluctant to part with. For example, being able to keep a rental property that is generating income could improve your chances of paying off your debts.
3. Have a unsecured debt burden that falls below $394,725 and a secured debt of no more than $1,184,200. As a quick primer: unsecured debt is debt that has no collateral to back it up, like credit cards and personal loans; secured debts is backed up by property, like mortgages and vehicle loans.
4. Have plenty of time to complete the bankruptcy. Chapter 13 bankruptcy proceedings can last several years.
As a final note, both of these types of bankruptcy filings can affect your ability to get credit for at least 10 years, but lenders may be a little more likely to lend to those who are making an attempt to pay their creditors through chapter 13. Contact a bankruptcy attorney for more information. Click here to read more.