Are you finding yourself behind on your bills? Have you amassed a large amount of debt from credit cards, medical bills, or other sources? Did you or a spouse recently experience a loss of income? If you answered yes to any of these questions, you may be thinking about filing for bankruptcy in order to reduce or eliminate your debt. While it is possible to liquidate debt completely through Chapter 7 bankruptcy, many people choose to file for Chapter 13 protection instead to pay back their debt in a more manageable way.
The decision to file for bankruptcy is a very personal one, however, and it should be discussed with a qualified bankruptcy lawyer so you know all of your available options. Before meeting with a lawyer to talk about filing Chapter 13, here are some things you should know about the personal bankruptcy process:
What is the different between Chapter 7 and 13 bankruptcy?
Both of these types of bankruptcy can be filed by individuals (as opposed to business or municipal bankruptcies). Chapter 7 is a liquidation of assets used for both individuals and businesses. A person filing for Chapter 7 will use this to sell off their assets, which may include a home, vehicle, stocks, and other items. Chapter 13 bankruptcy, however, is used to establish a payment plan on any debt to one’s creditors. One disadvantage of Chapter 13 is that it generally costs more to file than Chapter 7 — around $1,500 vs. about $300 — but there are other advantages to Chapter 13.
What are the advantages of filing Chapter 13 bankruptcy over Chapter 7?
Because it is not a liquidation like Chapter 7 bankruptcy, filing for Chapter 13 can help a debtor salvage his or her assets. In other words, rather than foreclosing on a home or having a vehicle repossessed, the person filing for Chapter 13 will be able to keep those items and pay for them if they still owe money on a mortgage or loan. While both Chapter 7 and Chapter 13 can have negative effects on a person’s credit, Chapter 13 may help a debtor avoid the significantly lower credit score that occurs after a Chapter 7 bankruptcy.
Why might you find yourself filing Chapter 13?
People file for Chapter 13 bankruptcy for a variety of reasons. Illness and medical bill debt are the most common reasons, accounting for 62% of all bankruptcy cases in the United States. Mortgages, credit cards, and bank loans also account for many bankruptcy cases. Overall, the debt one has must lead to a serious financial hardship in order for a bankruptcy case to be successful.
All bankruptcy situations are different. Because they rely so much on your personal finances, it’s important to meet with a bankruptcy attorney to discuss your individual circumstances. Good bankruptcy lawyers will be able to find the right solution to your debt and help you every step of the way.
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