For those with significant debt, filing for bankruptcy offers a means to start over financially. But there are significant differences that affect the result between the two most popular bankruptcy choices, Chapter 7, and Chapter 13. Making the best decision requires recognizing these distinctions and speaking with a knowledgeable bankruptcy attorney. The fundamentals of Chapter 7 and Chapter 13 bankruptcies are covered in this article, along with how important variables like debt levels, income levels, and the impact on credit scores differ between the two.
Consult a Bankruptcy Attorney
Difficult financial times may require relief through bankruptcy. Meeting with an attorney determines the best process for understanding the implications of Chapter 7 or 13 options. They advise the right solution specific to individual needs and goals.
Chapter 7 Basics
Chapter 7 aims to liquidate non-exempt assets paying creditors portion. Most remaining debts are then discharged without repayment plans. Eligibility examines income/expenses approving need. Asset sales conclude in typically under six months.
Chapter 13 Fundamentals
Chapter 13 establishes repayment plans balancing debt and ability to pay over three to five years. Current income determines the schedule. Interest rates may decrease while retaining property secured by loans. Missed payments risk case dismissal returning unpaid balances.
Debt Amounts and Income
Chapter 7 fits those lacking means repaying in a reasonable timeframe. Chapter 13 suited managing larger debt-loads due to greater income or asset value. Specific state median income examines eligibility considering personal budgets.
Effect on Credit Scores
Both impact credit scores, though Chapter 13 less severely due to continued payments. Scores rebound within two years usually as age of filings expires from credit reports over ten years. Discharge generally improves finances in the long term regardless.
Seek Bankruptcy Counsel
Attorneys help choose wisely taking individual financial pictures into account. They clarify the process throughout filing and ensure proper documentation. Honest evaluations determine the best route establishing fresh financial starts lawfully.
Who Can File for Bankruptcy?
To be eligible for either chapter, debtors must meet income limits set annually. For chapter 7, no prior bankruptcy in the past 8 years. Chapter 13 allows refiling every 6 years. Bankruptcy attorneys evaluate eligibility based on individual financial circumstances.
How Do I Choose Between Chapters?
A bankruptcy attorney can help decide the best option based on income, assets, debts. Chapter 7 may be preferable if it is low income, with few assets. Chapter 13 makes sense for those wanting to hold onto assets like a home by repaying over time through a court-approved plan.
What Assets Can I Keep?
Federal law allows debtors to keep certain assets including clothes, household items, vehicles, retirement funds. However, equity in valuable assets like a second home may be surrendered to pay creditors under chapter 7. Chapter 13 protects more assets.
Conclusion
In conclusion, according to a person’s particular financial circumstances and objectives, both Chapter 7 and Chapter 13 bankruptcy have a role. To suggest the best course of action, an attorney can examine all facets of income, costs, obligations, assets, and prospective future profits. While there may be a short-term impact on credit with either choice, filing for bankruptcy offers long-term relief and better financial management going ahead. Getting expert advice from a reputable bankruptcy attorney helps you make the most educated decision.
