Sometimes situations arise when you can no longer pay your bills. Although you may have the best intentions of paying off your debt, you simply may not have the means to make this happen. When you can no longer pay your bills, you may need to consider filing bankruptcy. Hopefully you will have considered your alternatives but sometimes bankruptcy is the most viable option. The question then becomes which type of bankruptcy will best suite your financial needs, Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Your current situation will help you to decide which bankruptcy route is best for you.
A majority of consumers choose to go with Chapter 7 bankruptcy. There are a variety of differences between Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy does not require you to make a plan of repayment. When you file for Chapter 7 bankruptcy, your debt is not immediately wiped out. Instead, a bankruptcy trustee will sell off your non-exempt assets in order to pay off your debts. It is important that you understand with Chapter 7 bankruptcy, you could potentially lose any property that you currently own.
However, with Chapter 13, you are not required to liquidate your assets in order to repay your creditors. Instead, you make a repayment plan to pay a portion or all of your unsecured debt back. This is done through the court system and payments can be made over a 36 to 60 month period. The amount you repay your creditors must be equal to or greater than what they would receive should you have liquidated your assets, as with Chapter 7 bankruptcy. If you follow through with your repayment plan, then your remaining unsecured debt will then be discharged.
If you have lost your job or have no means of repaying your debt, then you should probably consider filing for Chapter 7 bankruptcy. However, if you are still able to meet some of your monthly obligations, but cannot pay off your entire debt, then you may want to consider filing for Chapter 13 bankruptcy.
It is important that you have a full understanding of the lasting impact of filing for bankruptcy. Whether you are filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, there are financial consequences. Chapter 7 bankruptcy will have a steeper impact on your financial situation. By filing Chapter 7 bankruptcy you are telling creditors that you cannot be trusted to pay off your debts. Therefore, you will have a hard time finding creditors to lend you money in the future. This will be extremely important if you are ever in the need for a new car, mortgage or even a simple credit card.
Chapter 13 has less of an impact on your overall credit rating. Since you are still paying off your debt, just in a restructured form or at a lower interest rate, creditors see you as less of a financial risk, than someone who has wiped out there entire debt through Chapter 7.
Be aware that there are certain types of debt that cannot be discharged with either chapter of bankruptcy, so make sure you have a thorough understanding of bankruptcy law, especially with the major recent changes to the laws.
There are both pros and cons to filing either Chapter 7 bankruptcy or Chapter 13 bankruptcy. Before committing to either one, you should sit down with a financial adviser and go over your obligations and options completely. Weighing out the pros and cons of both types of bankruptcy and basing your decision on your current situation, you will be able to easily decide which bankruptcy route you should go with.
