With all of life’s unpredictable moments, many of us find ourselves struggling with our finances, and often people start to consider filing bankruptcy. Since there is a certain stigma attached to bankruptcy of any kind, and the procedure negatively affects your credit rating, it is not most people’s first choice when it comes with dealing with debt. However, sometimes debt can be so overwhelming that you might be struggling to make minimum payments, which often means paying more in interest than anything else. Many people struggle so much to pay credit card bills and other debts that their mortgage payments become difficult to manage, putting them at risk for losing their homes.
What’s the Difference Between Chapter 7 and Chapter 13?
For individuals the first thing to determine is whether to file Chapter 7 or Chapter 13 bankruptcy. Both of these options are designed to take a great deal of your debt, and either pay a reduced amount, or have the debt forgiven completely. Chapter 7 leaves the filer with a very limited amount of assets, and after filing many wind up losing their homes. The main distinction between Chapter 7 and Chapter 13 bankruptcy, is that Chapter 13 relies on your paying off an agreed upon amount of debt over time. This leads some people to feel better about filing Chapter 13 bankruptcy, even though it doesn’t make them look any better on their credit report. This is largely because Chapter 7 bankruptcy liquidates assets, pays creditors, and you’re done. Since Chapter 13 bankruptcy agreements last 3-5 years, those who file are actually in bankruptcy for longer.
Chapter 13 bankruptcy actually works very similarly to debt consolidation. All debts are lumped together, and you pay a set amount. Payment agreements are made over somewhere between 36 months and 60 months. With debt consolidation each creditor has to agree to a payment arrangement individually. With Chapter 13 bankruptcy, the courts mandate that creditors agree. It also stops interest on accounts, meaning you’re actually paying your real bill. For many, Chapter 13 provides an opportunity to re-grasp what it means to “live within their means.”
Which is Better?
How you live your life, and how you want to continue living your life, might play a major role as to whether you choose Chapter 7 or Chapter 13 bankruptcy. You may not qualify for a chapter 7 if your disposable income exceeds your monthly expenses. One advantage of Chapter 13 bankruptcy is that you get to keep much more of your possessions, It also considers all your debts, including student loans, house payments and car payments which may not be discharged in a chapter 7.
If you’re living a bare bones lifestyle anyway, liquidating your assets, and getting the bankruptcy over with by filing a Chapter 7 might be the best choice for you, especially if the majority of your debt will be included, and you don’t have a home to protect. But if you want to keep some of your possessions, that may be unprotected in a chapter 7, or even if you just want to have the personal knowledge and satisfaction that you paid what you could on your bills, you may want to talk to your bankruptcy lawyer about Chapter 13.
This blog should not be construed as providing a legal opinion or legal advice. Each person’s situation is different and requires careful analysis before an attorney at our firm can provide a recommendation or legal advice on how to proceed