Repairing Your Financial Situation

Posted on: 20 January 2016

Are you considering filing for bankruptcy? While bankruptcy is never an ideal outcome, it could be the best solution for you if you are dealing with a significant amount of debt. Bankruptcy gives you the ability to reduce or eliminate your debts in an affordable manner so you can start fresh and work on rebuilding your credit. However, it's important to know which type of bankruptcy is right for you. Chapter 7 and Chapter 13 are two of the most common types of bankruptcies for individuals. Your selection will impact how long you're in bankruptcy, how much of your assets you get to keep, and how soon you can begin rebuilding your finances. Here are descriptions of the two and the pros and cons of each:

Chapter 7

Chapter 7 is a popular form of bankruptcy for a couple of reasons. First, it's fast. The entire process often takes only a matter of months. Second, you may not have to repay any of your debts. That's because in a Chapter 7 bankruptcy, the debts are often wiped out completely. Of course, the other side of this is that you may have to sell some of your assets in the process. That's especially true if you're including in the bankruptcy debts that are tied to assets, like mortgage and car loans.

Additionally, some debts, like student loans, unpaid taxes, and child support, can't be included in Chapter 7 bankruptcy. Finally, Chapter 7 does have income limits. If your income exceeds a certain threshold, you may not qualify for Chapter 7 bankruptcy.

Chapter 13

Chapter 13 may be the best option for you if you're simply looking to restructure your unsecured debts, like credit cards, while retaining assets like your home and car. In Chapter 13, your creditors agree to accept a repayment plan, which may be for a fraction of your outstanding balance. As long as you stick to the repayment plan, they will stop all collection efforts. Once the repayment plan is complete, the debts are eliminated.

There are a few things to consider with Chapter 13. One is that the process can take years. In fact, many people don't complete their Chapter 13 process, which may put them in a worse situation than they were in before they filed. However, Chapter 13 does allow you to retain your assets. As long as you stick with the repayment terms, you may not see any noticeable change in your lifestyle. When the repayment plan is complete, you can begin the process of rebuilding your credit.

For more information, contact a bankruptcy attorney in your area. They can advise you on which type of bankruptcy is right for you.