Chapter 7 Vs Chapter 13 Bankruptcy: Which Is Right For You?
Filing for bankruptcy can help you to overcome otherwise insurmountable amounts of debt. However, in order to truly enjoy the maximum benefits that come along with this financial decision, you will first need to ensure you are filing the right type of bankruptcy petition for your needs. For most people, this will mean choosing between Chapter 7 and Chapter 13 bankruptcy. Below you will learn more about how each of these options impact your debts, your assets, and your credit so that you can ultimately determine which type of bankruptcy is right for your needs.
The impact that Chapter 7 bankruptcy will have on your debts is far different than the impact that a Chapter 13 bankruptcy petition will have. This is because while Chapter 7 bankruptcy is designed to allow for the discharge of certain debts, Chapter 13 bankruptcy is designed to restructure your debt.
When filing a Chapter 7 petition, you will be given the opportunity to discharge certain unsecured debts, such as medical bill and credit card debt. This means that you will no longer be legally responsible for paying these debts. However, your bankruptcy petition will have no impact on secure debts, such as a mortgage or car loan. These debts will still need to be paid according to the original loan terms or you will risk losing the property that was used to secure the loan.
When filing a Chapter 13 petition, you will remain legally obligated to repay all of your debts. However, you will have the ability to modify the terms of your repayment in order to better fit your current financial situation. This ability applies to both secured and unsecured debts.
Chapter 13 bankruptcy does not impact your assets because there is no discharge of debts. Chapter 7 bankruptcy, on the other hand, can have a significant impact on your assets. This is because in exchange for the ability to discharge your debts, bankruptcy laws limit the value of any assets you have during the life of your bankruptcy.
While you are allowed to maintain certain assets, such as a home and primary vehicle, the value of these assets will be limited. If the value of your assets exceeds the amount allowed by law, you will be required to surrender these assets so that they can be sold and the proceeds can be used to help pay off a portion of your debt.
Both Chapter 7 and Chapter 13 bankruptcy can have a negative impact on your credit rating and make it more difficult to obtain new lines of credit. However, since Chapter 13 bankruptcy requires you to still make payment on your debt, it may be possible to overcome this negative impact faster than when filing a Chapter 7 bankruptcy.
A Final Thought
No matter what type of bankruptcy petition you choose to file, ensuring that your financial information is reported correctly and that you properly utilize the bankruptcy exemption laws is a vital part of obtaining the financial fresh start that you require. This is why it is so important to always consult a qualified bankruptcy lawyer like John G Rhyne Attorney At Law before filing a bankruptcy petition of any kind.